UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2019 |
OR | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to _____________. |
Commission File Number 000-23357
BIOANALYTICAL SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)
INDIANA (State or other jurisdiction of incorporation or organization) |
35-1345024 (I.R.S. Employer Identification No.) |
|
2701 KENT AVENUE WEST LAFAYETTE, INDIANA (Address of principal executive offices) |
47906 (Zip code) |
|
(765) 463-4527 (Registrant's telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller Reporting Company x |
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
Securities registered pursuant to Section 12(b) of the Act
Title of each class | Trading Symbol(s) |
Name of each exchange
on which registered |
||
Common Shares | BASi | NASDAQ Capital Market |
As of August 10, 2019, 10,496,788 of the registrant's common shares were outstanding.
TABLE OF CONTENTS
2 |
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, 2019 |
September 30, 2018 |
|||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 506 | $ | 773 | ||||
Accounts receivable | ||||||||
Trade, net of allowance of $1,783 at June 30, 2019 and $1,948 at September 30, 2018 | 6,261 | 4,128 | ||||||
Unbilled revenues and other | 1,639 | 1,012 | ||||||
Inventories, net | 1,119 | 1,182 | ||||||
Prepaid expenses | 1,293 | 966 | ||||||
Total current assets | 10,818 | 8,061 | ||||||
Property and equipment, net | 21,056 | 16,610 | ||||||
Goodwill | 3,617 | 3,072 | ||||||
Other intangible assets, net | 2,967 | 3,318 | ||||||
Lease rent receivable | 127 | 115 | ||||||
Deferred tax asset | 31 | 62 | ||||||
Other assets | 28 | 30 | ||||||
Total assets | $ | 38,644 | $ | 31,268 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,488 | $ | 3,192 | ||||
Restructuring liability | 425 | 1,117 | ||||||
Accrued expenses | 2,499 | 1,571 | ||||||
Customer advances | 6,516 | 4,925 | ||||||
Revolving line of credit | 572 | - | ||||||
Capex line of credit | 460 | - | ||||||
Current portion of capital lease obligation | 18 | 87 | ||||||
Current portion of long-term debt | 1,050 | 909 | ||||||
Total current liabilities | 16,028 | 11,801 | ||||||
Capital lease obligation, less current portion | 23 | 37 | ||||||
Long-term debt, less current portion, net of debt issuance costs | 12,259 | 8,546 | ||||||
Total liabilities | 28,310 | 20,384 | ||||||
Shareholders’ equity: | ||||||||
Preferred shares, authorized 1,000,000 shares, no par value: | ||||||||
35 Series A shares at $1,000 stated value issued and outstanding at June 30, 2019 and at September 30, 2018 | 35 | 35 | ||||||
Common shares, no par value: | ||||||||
Authorized 19,000,000 shares; 10,496,669 issued and outstanding at June 30, 2019 and 10,245,277 at September 30, 2018 | 2,586 | 2,523 | ||||||
Additional paid-in capital | 25,100 | 24,557 | ||||||
Accumulated deficit | (17,387 | ) | (16,231 | ) | ||||
Total shareholders’ equity | 10,334 | 10,884 | ||||||
Total liabilities and shareholders’ equity | $ | 38,644 | $ | 31,268 |
The accompanying notes are an integral part of the condensed consolidated financial statements
3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, |
Nine Months Ended June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Service revenue | $ | 9,689 | $ | 4,866 | $ | 25,555 | $ | 14,421 | ||||||||
Product revenue | 1,172 | 1,173 | 3,275 | 2,939 | ||||||||||||
Total revenue | 10,861 | 6,039 | 28,830 | 17,360 | ||||||||||||
Cost of service revenue | 7,004 | 3,684 | 18,552 | 10,619 | ||||||||||||
Cost of product revenue | 728 | 730 | 2,168 | 1,795 | ||||||||||||
Total cost of revenue | 7,732 | 4,414 | 20,720 | 12,414 | ||||||||||||
Gross profit | 3,129 | 1,625 | 8,110 | 4,946 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 730 | 320 | 2,038 | 917 | ||||||||||||
Research and development | 128 | 142 | 397 | 430 | ||||||||||||
General and administrative | 2,521 | 1,195 | 6,332 | 3,510 | ||||||||||||
Total operating expenses | 3,379 | 1,657 | 8,767 | 4,857 | ||||||||||||
Operating loss) income | (250 | ) | (32 | ) | (657 | ) | 89 | |||||||||
Interest expense | (178 | ) | (49 | ) | (426 | ) | (149 | ) | ||||||||
Other income | 2 | 1 | 5 | 5 | ||||||||||||
Net loss before income taxes | (426 | ) | (80 | ) | (1,078 | ) | (55 | ) | ||||||||
Income taxes (benefit) expense | - | (5 | ) | 2 | (61 | ) | ||||||||||
Net income (loss) | $ | (426 | ) | $ | (75 | ) | $ | (1,080 | ) | $ | 6 | |||||
Comprehensive income (loss) | $ | (426 | ) | $ | (75 | ) | $ | (1,080 | ) | $ | 6 | |||||
Basic net income (loss) per share | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.00 | |||||
Diluted net income (loss) per share | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.00 | |||||
Weighted common shares outstanding: | ||||||||||||||||
Basic | 10,493 | 8,273 | 10,343 | 8,274 | ||||||||||||
Diluted | 10,493 | 8,273 | 10,343 | 8,652 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
4 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except number of shares)
Nine Month Period Ended June 30, 2019 | ||||||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Preferred Shares | Common Shares | paid-in | Accumulated | shareholders' | ||||||||||||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||||||||||||
Balance at September 30, 2018 | 35 | $ | 35 | 10,245,277 | $ | 2,523 | $ | 24,557 | ($ | 16,231 | ) | $ | 10,884 | |||||||||||||||
Adoption of accounting standard | (76 | ) | (76 | ) | ||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||
Net loss | (85 | ) | (85 | ) | ||||||||||||||||||||||||
Stock based compensation | 25 | 25 | ||||||||||||||||||||||||||
Balance at December 31, 2018 | 35 | 35 | 10,245,277 | 2,523 | 24,582 | (16,392 | ) | 10,748 | ||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||
Net loss | (569 | ) | (569 | ) | ||||||||||||||||||||||||
Stock based compensation | 44,615 | 11 | 99 | 110 | ||||||||||||||||||||||||
Stock option exercises | 639 | - | 1 | 1 | ||||||||||||||||||||||||
Balance at March 31, 2019 | 35 | 35 | 10,290,531 | 2,534 | 24,682 | (16,961 | ) | 10,290 | ||||||||||||||||||||
Smithers Avanza Acquisition | 200,000 | 50 | 344 | 394 | ||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||
Net loss | (426 | ) | (426 | ) | ||||||||||||||||||||||||
Stock based compensation | 71 | 71 | ||||||||||||||||||||||||||
Stock option exercises | 6,138 | 2 | 3 | 5 | ||||||||||||||||||||||||
Balance at June 30, 2019 | 35 | 35 | 10,496,669 | 2,586 | 25,100 | (17,387 | ) | 10,334 |
Nine Month Period Ended June 30, 2018 | ||||||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Preferred Shares | Common Shares | paid-in | Accumulated | shareholders' | ||||||||||||||||||||||||
Number | Amount | Number | Amount | Compensation | deficit | equity | ||||||||||||||||||||||
Balance at September 30, 2017 | 1,035 | $ | 1,035 | 8,243,896 | $ | 2,023 | $ | 21,446 | ($ | 16,037 | ) | $ | 8,467 | |||||||||||||||
Comprehensive loss: | - | |||||||||||||||||||||||||||
Net income | 26 | 26 | ||||||||||||||||||||||||||
Stock based compensation | 34 | 34 | ||||||||||||||||||||||||||
Stock option exercises | 305 | 1 | 1 | |||||||||||||||||||||||||
Balance at December 31, 2017 | 1,035 | 1,035 | 8,244,201 | 2,023 | 21,481 | (16,011 | ) | 8,528 | ||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||
Net income | 55 | 55 | ||||||||||||||||||||||||||
Stock based compensation | 35 | 35 | ||||||||||||||||||||||||||
Stock option exercises | 1,000 | - | - | - | ||||||||||||||||||||||||
Balance at March 31, 2018 | 1,035 | 1,035 | 8,245,201 | 2,023 | 21,517 | (15,956 | ) | 8,618 | ||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||
Net loss | (75 | ) | (75 | ) | ||||||||||||||||||||||||
Preferred stock conversion | (1,000 | ) | (1,000 | ) | 500,000 | 125 | 875 | - | ||||||||||||||||||||
Stock based compensation | 33 | 33 | ||||||||||||||||||||||||||
Stock option exercises | 76 | - | - | - | ||||||||||||||||||||||||
Balance at June 30, 2018 | 35 | 35 | 8,745,277 | 2,148 | 22,424 | (16,031 | ) | 8,576 |
The accompanying notes are an integral part of the consolidated financial statements.
5 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Operating activities: | ||||||||
Net (loss) income | $ | (1,080 | ) | $ | 6 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities net of effects of business acquisition: | ||||||||
Depreciation and amortization | 2,037 | 1,160 | ||||||
Stock based compensation | 196 | 102 | ||||||
Provision for doubtful accounts | (166 | ) | (6 | ) | ||||
Gain on disposal of property and equipment | (3 | ) | (1 | ) | ||||
Unrealized foreign currency gains | (147 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,477 | ) | (523 | ) | ||||
Inventories | 63 | (51 | ) | |||||
Income tax accruals | 30 | (92 | ) | |||||
Prepaid expenses and other assets | (181 | ) | 311 | |||||
Accounts payable | 664 | 35 | ||||||
Accrued expenses | 719 | (137 | ) | |||||
Customer advances | 912 | 1,406 | ||||||
Net cash provided by operating activities | 1,567 | 2,210 | ||||||
Investing activities: | ||||||||
Cash paid in acquisition | (1,271 | ) | — | |||||
Capital expenditures | (4,530 | ) | (926 | ) | ||||
Proceeds from sale of equipment | - | 2 | ||||||
Net cash used by investing activities | (5,801 | ) | (924 | ) | ||||
Financing activities: | ||||||||
Payments of long-term debt | (1,089 | ) | (167 | ) | ||||
Payments of debt issuance costs | (92 | ) | — | |||||
Payments on revolving line of credit | (19,493 | ) | (7,545 | ) | ||||
Borrowings on revolving line of credit | 20,065 | 7,545 | ||||||
Borrowing on construction loan | 2,012 | — | ||||||
Borrowing on long-term loan | 2,180 | — | ||||||
Borrowing on capex line of credit | 460 | — | ||||||
Proceeds from exercise of stock options | 6 | 1 | ||||||
Payments on capital lease obligations | (82 | ) | (96 | ) | ||||
Net cash provided by (used in) financing activities | 3,967 | (262 | ) | |||||
Net (decrease) increase in cash and cash equivalents | (267 | ) | 1,024 | |||||
Cash and cash equivalents at beginning of period | 773 | 434 | ||||||
Cash and cash equivalents at end of period | $ | 506 | $ | 1,458 | ||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Cash paid for interest | $ | 368 | $ | 139 | ||||
Conversion of preferred shares to common shares | - | $ | 1,000 | |||||
Smithers Avanza Toxicology Services LLC acquisition: | ||||||||
Assets acquired | $ | 3,384 | $ | — | ||||
Liabilities assumed | (1,719 | ) | — | |||||
Common shares issued | (394 | ) | — | |||||
Cash paid | $ | 1,271 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
6 |
BIOANALYTICAL SYSTEMS, INC.
(Amounts in thousands except per share data or as otherwise indicated)
(Unaudited)
1. | DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION |
Bioanalytical Systems, Inc. and its subsidiaries (“We,” “Our,” “Us,” the “Company” or “BASi”) provide contract research services to pharmaceutical and agrochemical companies, biomedical research organizations and government sponsored research centers. The Company integrates innovative laboratory services into its consultative practice to support clients’ drug discovery and development objectives for improved decision-making in toxicology, metabolism and disposition and regulated bioanalysis. Our manufacture of scientific instruments and related software for life sciences research is another component of creating innovative solutions for clients. Our customers are located throughout the world.
We have prepared the accompanying unaudited interim condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, included in the Company’s annual report on Form 10-K for the year ended September 30, 2018. Certain amounts in the fiscal 2018 consolidated financial statements have been reclassified to conform to the fiscal 2019 presentation without affecting previously reported net income (loss) or stockholders’ equity. In the opinion of management, the condensed consolidated financial statements for the three and nine months ended June 30, 2019 and 2018 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of our financial position at June 30, 2019. The results of operations for the three and nine months ended June 30, 2019 may not be indicative of the results for the year ending September 30, 2019.
2. | STOCK-BASED COMPENSATION |
The Company’s 2008 Stock Option Plan (“the Plan”) was used to promote our long-term interests by providing a means of attracting and retaining officers, directors and key employees and aligning their interests with those of our shareholders. The Plan is described more fully in Note 9 in the Notes to the Consolidated Financial Statements in our Form 10-K for the fiscal year ended September 30, 2018. In March 2018, our shareholders approved the amendment and restatement of the Plan in the form of the Amended and Restated 2018 Equity Incentive Plan (the “Equity Plan”) and the Company currently grants equity awards from the Equity Plan. The purpose of the Equity Plan is to promote our long-term interests by providing a means of attracting and retaining officers, directors and key employees. The maximum number of common shares that may be granted under the Equity Plan is 700 shares plus the remaining shares from the 2008 Stock Option Plan.
All options granted under the Plan and the Equity Plan had an exercise price equal to the fair market value of the underlying common shares on the date of grant. We expense the estimated fair value of stock options over the vesting periods of the grants. We recognize expense for awards subject to graded vesting using the straight-line attribution method, reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment is recognized at that time. Stock based compensation expense for the three and nine months ended June 30, 2019 was $71 and $196, respectively. Stock based compensation expense for the three and nine months ended June 30, 2018 was $33 and $102, respectively. The additional expense in the nine months ending June 30, 2019 was due to the grants issued to our new Chief Executive Officer in January 2019, option grants to all employees that were issued as of February 6, 2019 as well as option grants for employees related to the Smithers Avanza acquisition, as described in Note 9.
A summary of our stock option activity for the nine months ended June 30, 2019 is as follows (in thousands except for share prices):
Options
(shares) |
Weighted-
Average Exercise Price |
Weighted-
Average Grant Date Fair Value |
||||||||||
Outstanding – September 30, 2018 | 301 | $ | 1.73 | $ | 1.38 | |||||||
Exercised | (7 | ) | $ | 1.13 | $ | 0.94 | ||||||
Granted | 483 | $ | 1.50 | $ | 1.10 | |||||||
Forfeited | (4 | ) | $ | 1.75 | $ | 1.39 | ||||||
Outstanding - June 30, 2019 | 773 | $ | 1.59 | $ | 1.21 |
7 |
The weighted-average assumptions used to compute the fair value of the options granted in the nine months ended June 30, 2019 were as follows:
Risk-free interest rate | 2.51% |
Dividend yield | 0.00% |
Volatility of the expected market price of the Company's common shares | 71.1%-72.5% |
Expected life of the options (years) | 8.0 |
As of June 30, 2019, our total unrecognized compensation cost related to non-vested stock options was $540 and is expected to be recognized over a weighted-average service period of 1.4 years.
During the nine months ended June 30, 2019, we granted a total of 45 shares, of which 10 shares are restricted, to our CEO under the terms of his employment agreement. A summary of our restricted share activity for the nine months ended June 30, 2019 is as follows:
Restricted
Shares |
||||
Outstanding – September 30, 2018 | - | |||
Granted | 45 | |||
Unrestricted at Grant | (35 | ) | ||
Forfeited | - | |||
Outstanding - June 30, 2019 | 10 |
As of June 30, 2019, our total unrecognized compensation cost related to non-vested restricted stock was $9 and is expected to be recognized over a weighted-average service period of 1.55 years. The total fair value of the unrestricted shares granted during the three and nine months ended June 30, 2019 was $44.
3. | INCOME (LOSS) PER SHARE |
We compute basic income (loss) per share using the weighted average number of common shares outstanding. The Company has two categories of dilutive potential common shares: Series A preferred shares issued in May 2011 in connection with our registered direct offering and shares issuable upon exercise of options. We compute diluted earnings per share using the if-converted method for preferred stock and the treasury stock method for stock options, respectively. Shares issuable upon exercise of 773 options and 17 common shares issuable upon conversion of preferred shares were not considered in computing diluted income (loss) per share for the three and nine months ended June 30, 2019 because they were anti-dilutive.
8 |
The following table reconciles our computation of basic income per share to diluted income per share:
Three Months Ended
June 30, |
Nine Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Basic net income (loss) per share: | ||||||||||||||||
Net income (loss) applicable to common shareholders | $ | (426 | ) | $ | (75 | ) | $ | (1,080 | ) | $ | 6 | |||||
Weighted average common shares outstanding | 10,493 | 8,273 | 10,343 | 8,274 | ||||||||||||
Basic net income (loss) per share | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.00 | |||||
Diluted net income per share: | ||||||||||||||||
Diluted net income (loss) applicable to common shareholders | $ | (426 | ) | $ | (75 | ) | $ | (1,080 | ) | $ | 6 | |||||
Weighted average common shares outstanding | 10,493 | 8,273 | 10,343 | 8,274 | ||||||||||||
Plus: Incremental shares from assumed conversions: | ||||||||||||||||
Series A preferred shares | — | — | — | 351 | ||||||||||||
Dilutive stock options/shares | — | — | — | 27 | ||||||||||||
Diluted weighted average common shares outstanding | 10,493 | 8,273 | 10,343 | 8,652 | ||||||||||||
Diluted net income (loss) per share | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.00 |
4. | INVENTORIES |
Inventories consisted of the following:
June 30,
2019 |
September 30,
2018 |
|||||||
Raw materials | $ | 789 | $ | 939 | ||||
Work in progress | 142 | 89 | ||||||
Finished goods | 400 | 342 | ||||||
$ | 1,331 | $ | 1,370 | |||||
Obsolescence reserve | (212 | ) | (188 | ) | ||||
$ | 1,119 | $ | 1,182 |
5. | SEGMENT INFORMATION |
We operate in two principal segments - research services and research products. Our Services segment provides research and development support on a contract basis directly to pharmaceutical companies and other clients. Our Products segment provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. Our accounting policies in these segments are the same as those described in the summary of significant accounting policies found in Note 2 to the Consolidated Financial Statements in our annual report on Form 10-K for the fiscal year ended September 30, 2018.
9 |
Three Months Ended
June 30, |
Nine Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue: | ||||||||||||||||
Service | $ | 9,689 | $ | 4,866 | $ | 25,555 | $ | 14,421 | ||||||||
Product | 1,172 | 1,173 | 3,275 | 2,939 | ||||||||||||
$ | 10,861 | $ | 6,039 | $ | 28,830 | $ | 17,360 | |||||||||
Operating Income (Loss) | ||||||||||||||||
Service | $ | 1,385 | $ | 582 | $ | 2,899 | $ | 2,280 | ||||||||
Product | 23 | 125 | (27 | ) | 210 | |||||||||||
Corporate | (1,659 | ) | (739 | ) | (3,529 | ) | (2,401 | ) | ||||||||
$ | (250 | ) | $ | (32 | ) | $ | (657 | ) | $ | 89 | ||||||
Interest expense | (178 | ) | (49 | ) | (426 | ) | (149 | ) | ||||||||
Other income | 2 | 1 | 5 | 5 | ||||||||||||
Loss before income taxes | $ | (426 | ) | $ | (80 | ) | $ | (1,078 | ) | $ | (55 | ) |
6. | INCOME TAXES |
We use the asset and liability method of accounting for income taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. We record valuation allowance based on a determination of the expected realization of tax assets.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. We measure the amount of the accrual for which an exposure exists as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon settlement of the position.
At June 30, 2019 and September 30, 2018, we had no liability for uncertain income tax positions.
We record interest and penalties accrued in relation to uncertain income tax positions as a component of income tax expense. Any changes in the liability for uncertain tax positions would impact our effective tax rate. We do not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.
We file income tax returns in the U.S. and several U.S. states. We remain subject to examination by taxing authorities in the jurisdictions in which we have filed returns for years after 2013.
10 |
7. | DEBT |
Credit Facility
On June 23, 2017, we entered into a Credit Agreement with First Internet Bank of Indiana (“FIB”), which Credit Agreement as of June 30, 2019 had been amended on July 2, 2018, September 6, 2018, September 28, 2018 and May 1, 2019 (as amended, the “Credit Agreement”). The Credit Agreement includes three term loans (the “Initial Term Loan”, “Subsequent Term Loan,” and "New Term Loan," respectively), a revolving line of credit (the “Revolving Facility”), a construction draw loan (the “Construction Draw Loan”), an equipment draw loan (the “Equipment Draw Loan”), and a capital expenditure line of credit (the "Capex Line").
The Initial Term Loan for $4,500 bears interest at a fixed rate of 3.99%, with monthly principal and interest payments of approximately $33. The Initial Term Loan matures in June 2022. The balance on the Initial Term Loan at June 30, 2019 was $4,048. We used the proceeds from the Initial Term Loan to satisfy our indebtedness with Huntington Bank and terminated the related interest rate swap.
The July 2, 2018 amendment to the Credit Facility provided the Company with the Subsequent Term Loan in the amount of $5,500, the proceeds of which were used to fund a portion of the cash consideration for the acquisition of Seventh Wave Laboratories LLC. Amounts outstanding under the Subsequent Term Loan bear interest at a fixed per annum rate of 5.06%, with monthly principal and interest payments equal to $78. The Subsequent Term Loan matures July 2, 2023 and the balance on the Subsequent Term Loan at June 30, 2019 was $4,887.
The Revolving Facility provides a line of credit for up to $3,500 which the Company may borrow from time to time, subject to the terms of the Credit Agreement, including as may be limited by the amount of the Company’s outstanding eligible receivables. The Revolving Credit Facility bears interest at the Prime Rate (generally defined as the highest rate identified as the “Prime Rate” in The Wall Street Journal “Money Rates” column on the date the interest rate is to be determined, or if that date is not a publication date, on the publication date immediately preceding) less Twenty-five (25) Basis Points (0.25%). The balance on the Revolving Facility was $572 and $0 as of June 30, 2019 and September 30, 2018, respectively. We must pay accrued and unpaid interest on the outstanding balance under the Revolving Facility on a monthly basis.
The September 28, 2018 amendment provided the Company with the Construction Draw Loan in a principal amount not to exceed $4,445 and the Equipment Draw Loan in a principal amount not to exceed $1,429. The Construction Draw Loan and Equipment Draw Loan each mature on March 28, 2025. As of June 30, 2019, there was a $2,012 balance on the Construction Draw Loan and a $499 balance on the Equipment Draw Loan.
Subject to certain conditions precedent, a Construction Draw Loan and an Equipment Draw Loan each permit the Company to obtain advances aggregating up to the maximum principal amount available for such loan through March 28, 2020. Amounts outstanding under these loans bear interest at a fixed per annum rate of 5.20%. The Construction Draw Loan and the Equipment Draw Loan each require monthly payments of accrued interest on amounts outstanding through March 28, 2020, and thereafter monthly payments of principal and interest on amounts then outstanding through maturity.
In connection with the Smithers Avanza Acquisition, on May 1, 2019, as described in Note 9, the Company and FIB entered into a fourth amendment (the “Fourth Amendment”) to the Credit Agreement to (i) extend the term of the Company’s Revolving Facility to June 30, 2020, (ii) provide the Company with an additional term loan (the “New Term Loan”) in the amount of $1,271, the proceeds of which were used to fund the cash consideration for the Smithers Avanza Acquisition, and (iii) provide for an additional line of credit in the principal amount of $1,100 (the “Capex Line”), which the Company may borrow from time to time, subject to the terms of the Credit Agreement. The New Term Loan and the Capex Line mature November 1, 2025 and June 30, 2020, respectively. As of June 30, 2019, the balances on the New Term Loan and Capex Line were $1,271 and $460, respectively.
Amounts outstanding under the New Term Loan bear interest at a fixed per annum rate of 4.63%, while interest accrues on the principal balance of the Capex Line at a floating per annum rate equal to the sum of the Prime Rate plus Fifty Basis Points (0.5%), which rate shall change concurrently with the Prime Rate. Commencing June 1, 2019, the New Term Loan requires monthly interest only payments until December 1, 2019, from which time payments of principal and interest in monthly installments of $20 become due, with all accrued but unpaid interest, cost and expenses due and payable at the maturity date. The Company is required to pay accrued but unpaid interest on the Capex Line on a monthly basis commencing on June 1, 2019, until June 30, 2020, at which time the entire balance of the Capex Line, together with accrued but unpaid interest, costs and expenses, shall be due and payable in full. a unsecured promissory note in the initial principal amount of $810 made by the Smithers Avanza Purchaser and guaranteed by the Company. The promissory note bears interest at 6.5%.
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Following its amendment, the Company’s obligations under the Credit Agreement are guaranteed by BAS Evansville, Inc. (“BASEV”), Seventh Wave Laboratories, LLC (“Seventh Wave”), as well as BASi Gaithersburg LLC (“BASi Gaithersburg”), each a wholly owned subsidiary of the Company. The Company’s obligations under the Credit Agreement and BASEV’s, Seventh Wave’s and the BASi Gaithersburg’s obligations under their respective Guaranties are secured by first priority security interests in substantially all of the assets of the Company, BASEV, Seventh Wave and the BASi Gaithersburg respectively, as well as mortgages on the Company’s and BASEV’s facilities in West Lafayette, Indiana and Evansville, Indiana, respectively, and pledges of the Company’s ownership interests in its subsidiaries.
The Credit Agreement contains various restrictive covenants, including restrictions on the Company's ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to shareholders or repurchase outstanding stock, enter into related party transactions and make capital expenditures, other than upon satisfaction of the conditions set forth in the Credit Agreement. The Credit Agreement also requires us to maintain (i) a minimum debt service coverage ratio of not less than 1.25 to 1.0 for the period ended June 30, 2019 (with ratios ranging from 1.25 to 1.0 to 1.15 to 1.0 for the periods thereafter) and (ii) beginning with the quarter ended March 31, 2020, a cash flow coverage ratio whereby, the ratio of the Company’s total funded debt (as defined in the Credit Agreement) as of the last day of each fiscal quarter to its EBITDA (as defined in the Credit Agreement) for the 12 months ended on such date may not exceed 4.50 to 1.00 (5.0 to 1.0 for the period ended March 31, 2020). Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, and defaults under other material indebtedness, FIB may cease advancing funds, increase the interest rate on outstanding balances, accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. The Company was in compliance with these covenants as of June 30, 2019. The Company has also agreed to obtain a life insurance policy in an amount not less than $2,000 for its President and Chief Executive Officer and to provide FIB an assignment of such life insurance policy as collateral.
Additionally as part of the Smithers Avanza Acquisition, we have an unsecured promissory note payable to the Smithers Avanza Seller in the initial principal amount of $810 made by BASi Gaithersburg and guaranteed by the Company. The promissory note bears interest at 6.5%.
Long term debt is detailed in the table below.
As of: | ||||||||
June 30, 2019 | September 30, 2018 | |||||||
Initial term loan | $ | 4,048 | $ | 4,222 | ||||
Subsequent term loan | 4,887 | 5,392 | ||||||
New term loan | 1,271 | - | ||||||
Construction and Equipment loans | 2,511 | - | ||||||
Seller Note | 810 | - | ||||||
13,527 | 9,614 | |||||||
Less: Current portion | (1,050 | ) | (909 | ) | ||||
Less: Debt issue costs not amortized | (218 | ) | (159 | ) | ||||
Total Long-term debt | $ | 12,259 | $ | 8,546 |
8. | ACCRUED EXPENSES |
As part of a fiscal 2012 restructuring, we accrued for lease payments at the cease use date for our United Kingdom facility and have considered free rent, sublease rentals and the number of days it would take to restore the space to its original condition prior to our improvements. Based on these matters, we had a $1,117 reserve for lease related costs and for legal and professional fees and other costs to remove improvements previously made to the facility . During the first nine months of fiscal 2019, the Company released portions of the reserve for lease related liabilities that were no longer owed due to the statute of limitations. For the three and nine months ended June 30, 2019, general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were reduced by $78 and $624, respectively for the liability reduction. At June 30, 2019 and September 30, 2018, respectively, we had $425 and $1,117 reserved for the remaining liability. The reserve is classified as a current liability on the Condensed Consolidated Balance Sheets.
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9. | BUSINESS COMBINATIONS |
Seventh Wave Laboratories LLC acquisition
Overview
On July 2, 2018, the Company, through its wholly-owned subsidiary Seventh Wave Laboratories, LLC (f/k/a Cardinal Laboratories LLC) (the “Seventh Wave Purchaser”), acquired (the “Seventh Wave Acquisition”) substantially all of the assets of SW Chrysalis, LLC (f/k/a Seventh Wave Laboratories LLC) (the “Seventh Wave Seller”), a consulting-based contract research laboratory located in Maryland Heights, Missouri providing integrated services for discovery and preclinical drug development, under the terms and conditions of an Asset Purchase Agreement, dated July 2, 2018, among the Seventh Wave Purchaser, the Company, the Seventh Wave Seller and certain members of the Seventh Wave Seller. The total consideration for the Seventh Wave Acquisition was approximately $9,234, which consisted of $6,759 in cash, including an indemnity escrow of $750, and 1,500,000 of the Company’s common shares valued at $2,475, using the closing price of the Company’s common shares on June 29, 2018. The Seventh Wave Purchaser is operated as a wholly-owned subsidiary of the Company. The Company funded the cash portion of the purchase price for the Seventh Wave Acquisition with cash on hand and the net proceeds from the refinancing of its credit arrangements with FIB, as described in Note 7.
Smithers Avanza Toxicology Services LLC acquisition
Overview
On May 1, 2019, the Company, through its wholly-owned subsidiary BASi Gaithersburg LLC (f/k/a Oriole Toxicology Services LLC) (the “ Smithers Avanza Purchaser”), acquired (the “Smithers Avanza Acquisition”) from Smithers Avanza Toxicology Services LLC (the “Smithers Avanza Seller”), a consulting-based contract research laboratory located in Gaithersburg, Maryland, substantially all of the assets used by the Smithers Avanza Seller in connection with the performance of in-vivo mammalian toxicology CRO services for pharmaceuticals (small molecules and biologics), vaccines, agro and industrial chemicals, under the terms and conditions of an Asset Purchase Agreement, dated May 1, 2019, among the Smithers Avanza Purchaser, the Company, the Smithers Avanza Seller and the member of the Smithers Avanza Seller (the “Smithers Avanza Purchase Agreement”). The total consideration for the Smithers Avanza Acquisition was approximately $2,475, which consisted of $1,271 in cash, subject to certain adjustments and an indemnity escrow of $125, 200 of the Company’s common shares valued at $394 using the closing price of the Company’s common shares on April 30, 2019 and an unsecured promissory note in the initial principal amount of $810 made by the Smithers Avanza Purchaser and guaranteed by the Company. The promissory note bears interest at 6.5%. The Smithers Avanza Purchaser is operated as a wholly-owned subsidiary of the Company. The Company funded the cash portion of the purchase price for the Smithers Avanza Acquisition with cash on hand and the net proceeds from the refinancing of its credit arrangements with FIB, as described in Note 7.
The Smithers Avanza Purchase Agreement contains customary representations, warranties, covenants (including non-competition requirements applicable to the selling parties for a 5-year period) and indemnification provisions. As contemplated by the Smithers Avanza Purchase Agreement, on May 1, 2019 the Smithers Avanza Purchaser assumed amended lease arrangements for certain premises in Gaithersburg, Maryland (the “Lease Arrangements”). Under the Lease Arrangements, the Smithers Avanza Purchaser agreed to lease the premises for a term of 5 years and 8 months, with two 5 year extensions at the Smithers Avanza Purchaser’s option. Annual minimum rental payments under the initial term of the Lease Arrangements range from $400 to $600, provided that the Lease Arrangements provide the Smithers Avanza Purchaser with the option to purchase the premises. The Lease Arrangements include customary rights upon a default by landlord or tenant.
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Accounting for the Transaction
The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance requires consideration given, including contingent consideration, assets acquired and liabilities assumed to be valued at their fair market values at the acquisition date. The guidance further provides that: (1) in-process research and development will be recorded at fair value as an indefinite-lived intangible asset; (2) acquisition costs will generally be expensed as incurred, (3) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (4) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of purchase price over fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill. Preliminary results are included in the Company’s results from the acquisition date of May 1, 2019.
The Company’s preliminary allocation of the $2,475 purchase price to Smithers Avanza’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated fair values as of May 1, 2019, is included in the table below. Goodwill, which is derived from the enhanced scientific expertise, expanded customer base and our ability to provide broader service solutions through a comprehensive portfolio, is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and is deductible for tax purposes. The preliminary purchase price allocation as of June 30, 2019 is as follows:
Allocation as of
June 30, 2019 |
||||
Assets acquired and liabilities assumed: | ||||
Receivables | $ | 1,128 | ||
Property and equipment | 1,564 | |||
Prepaid expenses | 147 | |||
Intangible assets | 545 | |||
Accrued expenses | (305 | ) | ||
Customer advances | (604 | ) | ||
$ | 2,475 |
The preliminary allocation of the purchase price is based on valuations performed to determine the fair value of such assets and liabilities as of the acquisition date. Intangible assets, including goodwill, from this transaction ar allocated to the Company’s Services segment.
The Company incurred transaction costs of $264 for the nine months ended June 30, 2019 related to the Smithers Avanza Acquisition. These costs were expensed as incurred and were primarily recorded as selling, general, and administrative expenses on the Company’s consolidated statements of operations and comprehensive income (loss). Smithers Avanza recorded revenues of $1,421 and net income of $44 for the period beginning from the acquisition date of May 1, 2019 and ending on June 30, 2019.
Pro Forma Results
The Company’s unaudited pro forma results of operations for the three and nine months ended June 30, 2018 assuming the Seventh Wave Acquisition and the Smithers Avanza Acquisition had occurred as of October 1, 2017 are presented for comparative purposes below. These amounts are based on available information of the results of operations of the Seventh Wave Seller’s operations and the Smithers Avanza Seller’s operations prior to the acquisition date and are not necessarily indicative of what the results of operations would have been had the Seventh Wave Acquisition and the Smithers Avanza Acquisition been completed on October 1, 2017.
The unaudited pro forma information is as follows:
Three Months
Ended |
Nine Months
Ended |
|||||||
June 30, 2018 | June 30, 2018 | |||||||
Total revenues | $ | 10,832 | $ | 32,748 | ||||
Net loss | (652 | ) | (1,837 | ) | ||||
Pro forma basic net income (loss) per share | $ | (0.07 | ) | $ | (0.18 | ) | ||
Pro forma diluted net income (loss) per share | $ | (0.07 | ) | $ | (0.18 | ) |
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10. | NEW ACCOUNTING PRONOUNCEMENTS |
On October 1, 2018, the Company adopted Accounting Standard Codification, or ASC Topic 606, “ Revenue from Contracts with Customers ,” (Topic 606), using the modified retrospective method for all contracts that were not completed as of October 1, 2018. Comparative prior period information continues to be reported under the accounting standards in effect for the period presented. Topic 606 superseded the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Topic 606 requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation.
The cumulative effect of initially applying the new revenue standard was $(76) and has been recorded as an adjustment to the opening balance of retained earnings. The cumulative adjustment relates primarily to the recognition of revenue for free archive storage offered to customers. Gross sales and deferred revenue of $(76), respectively, were recorded as part of the cumulative effect adjustment. The comparative information has not been restated and it is reported in accordance with accounting standard Topic 605, which was in effect for those periods.
On October 1, 2018 the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230), which addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017. The adoption of this guidance had no material impact on our consolidated financial statements.
In February 2016, the FASB issued updated guidance on leases which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. The amendments are to be applied prospectively to business combinations that occur after the effective date. The Company is progressing with its preparation for the adoption and implementation of this new accounting standard and related changes in internal controls and will adopt the standard in the first quarter of fiscal 2020.
11. | REVENUE RECOGNITION |
In accordance with ASC 606, the Company disaggregates its revenue from customers into two revenue streams, service revenue and product revenue. At contract inception the Company assesses the services promised in the contract with the customers to identify performance obligations in the arrangements.
Service revenue
The Company enters into contracts with customers to provide drug discovery and development services with payments based on mainly fixed-fee arrangements. The Company also offers free archive storage services on certain contracts. Customers can also enter into separate archive storage contracts after the expiration of the free storage period.
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The Company’s drug discovery and development services contracts that include a free storage period are considered a single performance obligation because the company provides a highly integrated service. The inclusion of free storage fee in the measurement of progress under the discovery and development service contracts creates a timing difference between the amounts the company is entitled to receive in reimbursement of cost incurred and amount of revenue recognized on such costs, which is recognized as deferred revenue and classified as customer advances on the condensed consolidated balance sheet.
The Company’s fixed fee arrangements may involve bioanalytical and pharmaceutical method development and validation, nonclinical research services and the analysis of bioanalytical and pharmaceutical samples. For bioanalytical and pharmaceutical method validation services and nonclinical research services, revenue is recognized over time using the input method based on the ratio of direct costs incurred to total estimated direct costs. For contracts that involve method development or the analysis of bioanalytical and pharmaceutical samples, revenue is recognized over time when samples are analyzed or when services are performed. The Company generally bills for services on a milestone basis. These contracts represent a single performance obligation and due to the Company’s right to payment for work performed, revenue is recognized over time. Research services contract fees received upon acceptance are deferred until earned, and classified within customer advances on the condensed consolidated balance sheet. Unbilled revenues represent revenues earned under contracts in advance of billings.
Archive services provide climate controlled archiving for client’s data and samples. The archive revenue is recognized over time, generally when the service is provided. These arrangements typically include only one performance obligation. Amounts related to future archiving or prepaid archiving contracts for customers where archiving fees are billed in advance are accounted for as deferred revenue and recognized ratably over the period the applicable archive service is performed.
Product revenue
The Company’s products can be sold to multiple customers and have alternative use. Both the transaction sales price and shipping terms are agreed upon in the customer order. For these products, all revenue is recognized at a point in time, generally when title of the product and risk of loss is transferred to the customer based upon shipping terms. These arrangements typically include only one performance obligation. Certain products have maintenance agreements available for customers to purchase. These are typically billed in advance and are accounted for as deferred revenue and recognized ratably over the applicable maintenance period.
The impact of adoption of ASC 606 to the Company’s condensed consolidated financial statements for the three months ended June 30, 2019 is as follows:
Statements of Operations and Comprehensive Income (Loss)
As Reported |
Effect of
Change Higher/(Lower) |
Amount Without
Adoption of ASC 606 |
||||||||||
Service revenue | $ | 9,689 | $ | (31 | ) | $ | 9,720 | |||||
Product revenue | 1,172 | 1,172 | ||||||||||
Total revenue | 10,861 | (31 | ) | 10,892 | ||||||||
Total cost of revenue | 7,732 | 7,732 | ||||||||||
Gross profit | 3,129 | (31 | ) | 3,160 | ||||||||
Operating loss | (250 | ) | (31 | ) | (219 | ) | ||||||
Net loss before income taxes | (426 | ) | (31 | ) | (395 | ) | ||||||
Income taxes expense | ||||||||||||
Net loss | $ | (426 | ) | $ | (31 | ) | $ | (395 | ) | |||
Diluted net loss per share | $ | (0.04 | ) | $ | (0.00 | ) | $ | (0.04 | ) |
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Balance Sheet
As Reported |
Effect of
Change Higher/(Lower) |
Amount Without
Adoption of ASC 606 |
||||||||||
Current Liabilities: | ||||||||||||
Customer advances | $ | 6,516 | $ | (101 | ) | $ | 6,415 | |||||
Shareholder’s equity: | ||||||||||||
Accumulated deficit | $ | (17,387 | ) | $ | 101 | $ | (17,286 | ) |
The impact of adoption of ASC 606 to the Company’s condensed consolidated financial statements for the nine months ended June 30, 2019 is as follows:
Statements of Operations and Comprehensive Income (Loss)
As Reported |
Effect of
Change Higher/(Lower) |
Amount Without
Adoption of ASC 606 |
||||||||||
Service revenue | $ | 25,555 | $ | (25 | ) | 25,580 | ||||||
Product revenue | 3,275 | 3,275 | ||||||||||
Total revenue | 28,830 | (25 | ) | 28,855 | ||||||||
Total cost of revenue | 20,720 | 20,720 | ||||||||||
Gross profit | 8,110 | (25 | ) | 8,135 | ||||||||
Operating loss | (657 | ) | (25 | ) | (632 | ) | ||||||
Net loss before income taxes | (1,078 | ) | (25 | ) | (1053 | ) | ||||||
Income taxes benefit | 2 | 2 | ||||||||||
Net loss | $ | (1,080 | ) | $ | (25 | ) | $ | (1055 | ) | |||
Diluted net loss per share | $ | (0.10 | ) | $ | (0.00 | ) | $ | (0.10 | ) |
Balance Sheet
As Reported |
Effect of
Change Higher/(Lower) |
Amount Without
Adoption of ASC 606 |
||||||||||
Current Liabilities: | ||||||||||||
Customer advances | $ | 6,516 | $ | (101 | ) | $ | 6,415 | |||||
Shareholder’s equity: | ||||||||||||
Accumulated deficit | $ | (17,387 | ) | $ | 101 | $ | (17,286 | ) |
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Report and may include, but are not limited to, statements regarding our intent, belief or current expectations with respect to (i) our strategic plans; (ii) trends in the demand for our products and services; (iii) trends in the industries that consume our products and services; (iv) our ability to develop new products and services; (v) our ability to make capital expenditures and finance operations; (vi) global economic conditions, especially as they impact our markets; (vii) our cash position; (viii) our ability to successfully integrate the operations and personnel related to our Seventh Wave and Smithers Avanza acquisitions; (ix) our ability to effectively manage current and any future expansion or acquisition initiatives undertaken by the Company; (x) our ability to service our outstanding indebtedness and (xi) our expectations regarding the volume of new bookings, pricing, gross profit margins and liquidity. Readers are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, many of which are beyond our control.
In addition, we have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, actual events may differ from those assumptions, and as a result, the forward-looking statements based upon those assumptions may not accurately project future events. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included or incorporated by reference elsewhere in this Report. In addition to the historical information contained herein, the discussions in this Report may contain forward-looking statements that may be affected by risks and uncertainties, including those discussed in Item 1A, Risk Factors contained in our annual report on Form 10-K for the fiscal year ended September 30, 2018. Our actual results could differ materially from those discussed in the forward-looking statements.
Amounts in this Item 2 are in thousands, unless otherwise indicated.
Recent Developments and Executive Summary
Over the last twelve months, we have undertaken significant internal and external growth initiatives. We acquired the business of Seventh Wave Laboratories, LLC, in July 2018, commenced the expansion of our facilities in Evansville, Indiana, in Ocotber 2018, which should be completed by November 2019 and validated by March 2020, acquired the toxicolgy business of Smithers Avanza on May 1, 2019, and obtained funding to support these initiatives and other improvements to our facilites and equipment in order to support future growth and enhance our scientific capabilities, client service offerings and client experiences. In addition to the aquisitions and facility expansions and improvements, during the nine months ended June 30, 2019, we recruited and filled open positions for Chief Executive Officer, Chief Operations Officer, Chief Commercial Officer and a critical scientific leadership role of Senior Vice President for DMPK. We believe these leaders, combined with our existing management team and expansion initiatives, development of our sales and marketing team and the hiring of new employees to develop our scientific team, have led and will continue to lead to signifcant growth in revenue and the ablity to improve the service offerings to our clients. We recoginize the recent investments in growth, developing a leadership team, new employees, scientific strength and added services are critical to meeting the future expecations of our clients, employees and shareholders. We believe, the actions and investments over the last year have allowed the Company to form a foundation we can build upon. Our financial results have been in line with management's expectations for fiscal 2019. Our new orders remain strong and we believe we are on track with our goals and plans for this year and fiscal 2020.
The acquisition of Seventh Wave Laboratories LLC, a consulting-based contract research laboratory located in Maryland Heights, Missouri providing integrated services for discovery and preclinical drug development, was completed under the terms and conditions of an Asset Purchase Agreement, dated July 2, 2018 (the “Seventh Wave Acquisition”). In connection with the Seventh Wave Acquisition, on July 2, 2018 the Company and First Internet Bank entered into an amendment to the Company's credit arrangements. Refer to the Liquidity and Capital Resources Section herein for additional information. We have been capitalizing on the collective skill sets, expertise and assets acquired via the Seventh Wave Acquisition to expand our service offerings and reach additional clients.
On September 28, 2018, we entered into a further amendment to our credit arrangements which provided lines of credit for borrowings of up to $4,445 for construction financing and $1,429 for future equipment acquisitions. In October 2018, we signed a contract to begin construction of approximately 12,000 feet of expanded laboratory space at our Evansville facility. The space is projected to be completed by November of 2019 and validated by March 2020.
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On May 1, 2019, we acquired certain toxicology related assets of Smithers Avanza Toxicology Services LLC, a consulting-based contract research laboratory located in Gaithersburg, Maryland providing in-vivo mammalian toxicology CRO services for pharmaceuticals (small molecules and biologics), vaccines, agro and industrial chemicals (the “Smithers Avanza Acquisition”). In connection with the Smithers Avanza Acquisition, on May 1, 2019, the Company and First Internet Bank entered into an amendment to the Company's credit arrangements. Refer to Note 9 to the Condensed Consolidated Financial Statements for additional information. We have and anticipate continuing to taking advantage of immediate capacity and expect to further capitalize on the assets and broadened scientific expertise acquired via the Smithers Avanza Acquisition to reach additional clients.
We are working on the integration of the combined businesses resulting from the Seventh Wave Acquisition and the Smithers Avanza Acquisition. We plan to further develop our sales, marketing, client services and branding. We will continue to evaluate additional internal and external growth opportunities and new services to provide to existing clients. We will also continue to develop existng services into "Centers of Excellance" to distinguish our services in the industry.
Business Overview
Bioanalytical Systems, Inc. and its subsidiaries (“We,” “Our,” “Us,” the “Company” or “BASi”) provide contract research services to pharmaceutical and agrochemical companies, biomedical research organizations and government sponsored research centers. The Company integrates innovative laboratory services into its consultative practice to support clients’ drug discovery and development objectives for improved decision-making in toxicology, metabolism and disposition and regulated bioanalysis. Our manufacture of scientific instruments and related software for life sciences research is another component of creating innovative solutions for clients. Our customers are located throughout the world. We derive our revenues from sales of our research services and drug development instruments, both of which are focused on evaluating drug safety and efficacy.
We support both the non-clinical and clinical development needs of researchers and clinicians for small molecule drug candidates. Our scientists have the skills in analytical instrumentation development, chemistry, computer software development, histology, pathology, physiology, medicine, analytical chemistry and toxicology to make the services and products we provide increasingly valuable to our current and potential clients. Our principal clients are scientists engaged in analytical chemistry, drug safety evaluation, clinical trials, drug metabolism studies, pharmacokinetics and basic research from small start-up biotechnology companies to many of the largest global pharmaceutical companies. We are committed to bringing scientific expertise, quality and speed to every drug discovery and development program to help our clients develop safe and effective life-changing medicines.
Our business is largely dependent on the level of pharmaceutical and biotechnology companies' efforts in new drug discovery and approval. Our contract research services segment is a direct beneficiary of these efforts, through outsourcing by these companies of research work. Our products segment is an indirect beneficiary of these efforts, as increased drug development leads to capital expansion, providing opportunities to sell the equipment we produce and the consumable supplies that support our products.
Developments within the industries we serve have a direct, and sometimes material, impact on our operations. Currently, many large pharmaceutical companies have major "blockbuster" drugs that are nearing the end of their patent protections. This puts significant pressure on these companies both to develop new drugs with large market opportunity, and to re-evaluate their cost structures and the time-to-market of their products. Contract research organizations have benefited from these developments, as the pharmaceutical industry has turned to out-sourcing to both reduce fixed costs and to increase the speed of research and data development necessary for new drug applications. The number of significant drugs that have reached or are nearing the end of their patent protection has also benefited the generic drug industry. Generic drug companies provide a significant source of new business for CROs as they develop, test and manufacture their generic compounds.
We also believe that the development of innovative new drugs is evolving, evidenced by the significant reduction of expenditures on research and development at several major international pharmaceutical companies, accompanied by increases in outsourcing and investments in smaller start-up companies that are performing the early development work on new compounds. Many of these smaller companies are funded by either venture capital or pharmaceutical investment, or both, and generally do not build internal staffs that possess the extensive scientific and regulatory skills required to perform the various activities necessary to progress a drug candidate to the filing of an Investigative New Drug application with the FDA.
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A significant portion of innovation in the pharmaceutical industry is now being driven by biotech and small, venture capital funded drug development companies. Many of these companies are "single-molecule" entities, whose success depends on one innovative compound. While several biotech companies have reached the status of major pharmaceutical companies, the industry is still characterized by smaller entities. These developmental companies generally do not have the resources to perform much of the research within their organizations, and are therefore dependent on the CRO industry for both their research and for guidance in preparing their regulatory submissions. These companies have provided significant new opportunities for the CRO industry, including BASI. We believe that the Company is ideally positioned to serve these customers as they look for alternatives to the large CROs that cater primarily to the large pharmaceutical company segment of the marketplace.
While continuing to maintain and develop our relationships with large pharmaceutical companies, we aggressively promote our services to developing businesses, which will require us to expand our existing capabilities to provide services early in the drug discovery and development phases, and to consult with customers on regulatory strategy and compliance leading to their FDA filings. Our Enhanced Drug Discovery services, part of this strategy, utilizes our proprietary Culex® technology to provide early experiments in our laboratories that previously would have been conducted in the sponsor’s facilities. As we move forward, we must balance the demands of the large pharmaceutical companies with the personal touch needed by smaller companies to develop a competitive advantage. We intend to accomplish this through the use of and expanding upon our existing project management skills, strategic partnerships and relationship management.
Research services are capital intensive. The investment in equipment, facilities and human capital to serve our markets is substantial and continuing. Rapid changes in automation, precision, speed and technologies necessitate a constant investment in equipment and software to meet market demands. We are also impacted by the heightened regulatory environment and the need to improve our business infrastructure to support our operations, which will necessitate additional capital investment. Our ability to generate capital to reinvest in our capabilities and to obtain additional capital if and as needed through financial transactions, is critical to our success. Sustained growth will require additional investment in future periods. Positive cash flow and access to capital will be important to our ability to make such investments.
In fiscal 2018, following improvements in many areas in fiscal 2017, we were able to see our new vision start to come to fruition as we addressed deferred maintenance issues, made strategic investments in new equipment, recruited critical leadership positions and scientists and obtained additional financing which allowed us to complete the Seventh Wave Acquisition. In fiscal 2018, we also increased our investment in research and development for specific products and restarted the discovery lab in West Lafayette. Our goals included increasing revenue on a consistent basis while investing and adding additional talent and complementary services. During fiscal 2019, in addition to closing the Smithers Avanza Acquisition and the expansion of our Evansville facility, we have concentrated efforts and investments on recruiting and filling critical leadership and scientific positions, enhancing our business development program and marketing efforts, as well as ongoing Company-wide activities intended to enhance the client experience and streamline our communication, systems and operations.
We completed the Seventh Wave Acquisition in July 2018 and the Smithers Avanza Acquisition in May 2019, during the third quarter of fiscal 2019. We believe these acquisitions will allow us to capitalize on the collective skill sets, expertise and assets of the combined operations to expand our service offerings and reach more clients. We believe further that these acquisitions have provided the Company additional support for further corporate development, and additional sales talent to help drive profitable growth. With the acquisitions, we have more than doubled our active client base, enhanced client service offerings and have the ability to reduce expenses for services previously outsourced by the newly combined entities. In addition, the combined operations provide an opportunity to integrate support services and leverage relevant software.
Our long-term strategic objectives are to be a Company people want to be a part of that is respected by clients for its excellance in service, products and performance, and to maximize the Company’s intrinsic value per share. Our goals include increasing revenue on a consistent basis, while investing and adding additional talent and complementary services in order to deliver excellent data and results for our clients. We intend to continue enhancing our business development program and marketing efforts, increasing our visibility in the marketplace and building our sales team. We also intend to complete ongoing Company-wide activities intended to enhance the client experience and streamline our communication, systems and operations. We have seen our sales and backlog grow as we continue to promote our vision.
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During fiscal 2019, we have continued to invest in Products research and development in order to upgrade current products and to identify potential new products. We have also further developed and expanded our relationships with distributors and resellers to boost sales in our Products business. We continue to evaluate adding additional partnerships with companies similar to our current partners, Joanneum Research and PalmSens, to expand our Product offerings. Further, we have added key talent to help drive sales and development of our Products and to solidify relationships with our clients and prospective partners. We believe these measures will prepare us for growth in the long term.
We plan to continue to emphasize establishing a positive culture, which we believe has significantly reduced our employee turnover and will facilitate our continued recruitment and retention of talent.
We review various metrics to evaluate our financial performance, including revenue, margins and earnings. In the nine months ended June 30, 2019, total revenues increased from $17,360 to $28,830 for a 66.1% increase. Gross profit increased from $4,946 to $8,110 for a 64.0% increase. Operating expenses were higher by 80.5% as compared to the same period in fiscal 2018. The most notable growth in operating expenses is related to our investment and focus in sales and marketing efforts to promote our brand as well as costs related to adding to the leadership team as well as costs related to acquisitions. The latest acquisition was closed May 1, 2019. There was an operating loss of $657 for the nine months ended June 30, 2019, compared to operating income of $89 for the same period in fiscal 2018.
As of June 30, 2019, we had $506 of cash and cash equivalents as compared to $773 of cash and cash equivalents at the end of fiscal 2018. In the first nine months of fiscal 2019, we generated $1,567 in cash from operations as compared to $2,210 in the first nine months of fiscal 2018. Total capital expenditures increased in the first nine months of fiscal 2019 to $4,530 from $926 in the prior year period as we began the expansion at our Evansville facility and invested in laboratory and IT equipment at all sites.
As of June 30, 2019, we had a $572 balance on our $3,500 general line of credit, a $2,012 balance on our $4,445 construction line of credit and a $499 balance on our $1,429 equipment line of credit. As described herein, we incurred significant additional indebtedness in connection with financing the Seventh Wave Acquisition and the Smithers Avanza Acquisition and expect to incur additional indebtedness through borrowings under the construction and equipment lines of credit as we continue to undertake the Evansville, Indiana facilities expansion.
For a detailed discussion of our revenue, margins, earnings and other financial results for fiscal 2019, see “Results of Operations” below.
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Results of Operations
The following table summarizes our condensed consolidated statement of operations as a percentage of total revenues for the periods shown:
Three Months Ended
June 30, |
Nine Months Ended June 30, |
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2019 | 2018 | 2019 | 2018 | |||||||||||||
Service revenue | 89.2 | % | 80.6 | % | 88.6 | % | 83.1 | % | ||||||||
Product revenue | 10.8 | 19.4 | 11.4 | 16.9 | ||||||||||||
Total revenue | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of Service revenue (a) | 72.3 | 75.7 | 72.6 | 73.6 | ||||||||||||
Cost of Product revenue (a) | 62.1 | 62.3 | 66.2 | 61.1 | ||||||||||||
Total cost of revenue | 71.2 | 73.1 | 71.9 | 71.5 | ||||||||||||
Gross profit | 28.8 | 26.9 | 28.1 | 28.5 | ||||||||||||
Total operating expenses | 31.1 | 27.4 | 30.4 | 28.0 | ||||||||||||
Operating income (loss) | (2.3 | ) | (0.5 | ) | (2.3 | ) | 0.5 | |||||||||
Other income (expense) | (1.6 | ) | (0.8 | ) | (1.5 | ) | (0.8 | ) | ||||||||
Income (loss) before income taxes | (3.9 | ) | (1.3 | ) | (3.7 | ) | (0.3 | ) | ||||||||
Income tax (benefit) expense | 0.0 | (0.1 | ) | 0.0 | (0.4 | ) | ||||||||||
Net Income (Loss) | (3.9)% | (1.2 | )% | (3.7 | )% | 0.1 | % |
(a) | Percentage of service and product revenues, respectively |
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Service and Product Revenues
Revenues for the quarter ended June 30, 2019 increased 79.8% to $10,861 compared to $6,039 for the same period last fiscal year.
Our Service revenue increased 99.1% to $9,689 in the third quarter of fiscal 2019 compared to $4,866 for the comparable prior-year period. Nonclinical services revenues increased $4,521 due primarily to the acquisitions of Seventh Wave Laboratories and the Smithers Avanza Toxicology Services, which amounted to an increase of $2,845 and $1,421, respectively. Legacy BASi nonclinical revenue increased $555 due to an increase in demand for studies in the third quarter of fiscal 2019. Bioanalytical analysis revenues increased $373 due mainly to the additional revenue related to the Seventh Wave Acquisition, which accounted for $509 of the increase, partially offset by fewer samples analyzed during the third quarter of 2019 as compared to the comparable period last fiscal year. Other laboratory services revenues were negatively impacted by lower pharmaceutical analysis revenue, partially offset by higher discovery service revenues in the third quarter of fiscal 2019 versus the comparable period in fiscal 2018. Archive revenue decreased by $70 also reducing other laboratory services revenue in the third quarter of fiscal 2019.
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Three Months Ended
June 30, |
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2019 | 2018 | Change | % | |||||||||||||
Bioanalytical analysis | $ | 1,365 | $ | 992 | $ | 373 | 37.6 | % | ||||||||
Nonclinical services | 7,868 | 3,347 | 4,521 | 135.1 | % | |||||||||||
Other laboratory services | 456 | 527 | (71 | ) | (13.5 | )% | ||||||||||
$ | 9,689 | $ | 4,866 | $ | 4,823 |
Sales in our Products segment remained consistent in the third quarter of fiscal 2019 at $1,172 from $1,173 in the same period of the prior fiscal year. Culex automated in vivo sampling systems sales remained substantially consistent, while analytical instruments revenues increased slightly, which increase was partly offset by a decrease in other instrument revenue from the same period last fiscal year.
Three Months Ended June 30, |
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2019 | 2018 | Change | % | |||||||||||||
Culex, in-vivo sampling systems | $ | 599 | $ | 595 | $ | 4 | 0.7 | % | ||||||||
Analytical instruments | 462 | 444 | 18 | 4.1 | % | |||||||||||
Other instruments | 111 | 134 | (23 | ) | (17.2 | )% | ||||||||||
$ | 1,172 | $ | 1,173 | (1 | ) |
Cost of Revenues
Cost of revenues for the third quarter of fiscal 2019 was $7,732 or 71.2% of revenue, compared to $4,414, or 73.1% of revenue for the comparable prior-year period.
Cost of Service revenue as a percentage of Service revenue decreased to 72.3% during the third quarter of fiscal 2019 from 75.7% in the comparable period in fiscal 2018. The principal cause of this decrease was the increase in the nonclinical service revenues that facilitated a higher absorption of fixed cost in the period.
Cost of Products revenue as a percentage of Products revenue in the third quarter of fiscal 2019 remained relatively consistent with the comparable prior-year period, decreasing slightly to 62.1% from 62.3%.
Operating Expenses
Selling expenses for the three months ended June 30, 2019 increased 128.1% to $730 from $320 for the comparable period in fiscal 2018. This increase is mainly due to higher salaries and benefits expense attributable to the additional sales employees from the Seventh Wave Laboratories and Smithers Avanza acquisitions, plus higher outside services, travel and exhibition related expenses in the third quarter of fiscal 2019 as compared to the prior-year period.
Research and development expenses for the third quarter of fiscal 2018 decreased 10.0% over the comparable period last fiscal year to $128 from $142.
General and administrative expenses for the third quarter of fiscal 2019 increased 111.0% to $2,521 from $1,195 for the comparable prior-year period. The principal reasons for the increase included administrative cost of the operations acquired via the Seventh Wave Acquisition and theSmithers Avanza Acquisition, higher corporate insurance expenses, increased travel expenses and consulting and legal fees associated with the Smithers Avanza Acquisition, and increased stock-based compensation expense as a result of new grants to employees hired as part of the Smithers Avanza Acquisition. The increase in expenses was partially offset by the release of a portion of the reserve for lease-related liabilities that were legally time barred and positive effect from collection of fully reserved account receivable balances.
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Other Income (Expense)
Other expense for the third quarter of fiscal 2019 was $176, as compared to other expense of $48 for the third quarter of fiscal 2018. The primary reason for the change in expense was the increase in interest expense under our credit arrangements with First Internet Bank.
Income Taxes
Our effective income tax rate for the three months ended June 30, 2019 and 2018 was (0.17)% and (3.16)%, respectively. The current year expense primarily relates to state income taxes. The prior year benefit relates to an Alternative Minimum Tax (AMT) credit carryforward that will be refundable due to AMT being repealed for corporations. This will be refundable for any tax year beginning after 2017 and before 2022 in an amount equal to 50% (100% for tax years beginning in 2021) of the excess minimum tax credit for the tax year, over the amount of the credit allowable for the year against regular tax liability.
Net Income (Loss)
As a result of the factors described above, net loss for the three months ended June 30, 2019 amounted to $426 compared to a net loss of $75 in the comparable fiscal 2018 period.
Nine Months Ended June 30, 2019 Compared to Nine Months Ended June 30, 2018
Service and Product Revenues
Revenues for the nine months ended June 30, 2019 increased 66.1% to $28,830 as compared to $17,360 for the same period last fiscal year.
Our Service revenue increased 77.2% to $25,555 in the first nine months of fiscal 2019 compared to $14,421 for the comparable prior-year period. Nonclinical services revenues increased during the first nine months of fiscal 2019 due to an overall increase in the number of studies from the prior year and additional revenue attributable to the Seventh Wave Laboratories and Smithers Avanza acquisitions of $7,736 and $1,421, respectively. Bioanalytical analysis revenues increased primarily due to the Seventh Wave Acquisition while legacy BASi bioanalytical analysis revenue decreased slightly compared to the comparable prior-year period. Other laboratory services revenues were positively impacted by higher pharmaceutical analysis and discovery services revenues in the first nine months of fiscal 2019 versus the comparable period in fiscal 2018, while Archive revenue decreased by $75 in the first nine months of fiscal 2019 compared to the comparable period in fiscal 2018.
Nine Months Ended June 30, |
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2019 | 2018 | Change | % | |||||||||||||
Bioanalytical analysis | $ | 4,940 | $ | 3,253 | $ | 1,687 | 51.9 | % | ||||||||
Nonclinical services | 19,184 | 9,699 | 9,485 | 97.8 | % | |||||||||||
Other laboratory services | 1,431 | 1,469 | (38 | ) | (2.6 | )% | ||||||||||
$ | 25,555 | $ | 14,421 | $ | 11,134 |
Sales in our Product segment increased 11.4% in the first nine months of fiscal 2019 from $2,939 to $3,275 when compared to the same period in the prior fiscal year. The increase stems primarily from increased sales of our Culex automated in vivo sampling instruments and increased sales of our Analytical instruments in the first nine months of fiscal 2019.
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Nine Months Ended June 30, |
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2019 | 2018 | Change | % | |||||||||||||
Culex, in-vivo sampling systems | $ | 1,568 | $ | 1,366 | $ | 202 | 14.8 | % | ||||||||
Analytical instruments | 1,290 | 1,154 | 136 | 11.8 | % | |||||||||||
Other instruments | 417 | 419 | (2 | ) | (0.5 | )% | ||||||||||
$ | 3,275 | $ | 2,939 | $ | 336 |
Cost of Revenues
Cost of revenues for the first nine months of fiscal 2019 was $20,720 or 71.9% of revenue, compared to $12,414, or 71.5% of revenue for the prior year period.
Cost of Service revenue as a percentage of Service revenue decreased to 72.6% during the first nine months of fiscal 2019 from 73.6% in the comparable period last year due to the mix of services provided for the period.
Cost of Product revenue as a percentage of Product revenue in the first nine months of fiscal 2019 increased to 66.2% from 61.1% in the comparable prior year period. This increase in the first nine months of fiscal 2019 is mainly due to the increase in material cost and adjustment of selling price for in vivo products to stay competitive with the market.
Operating Expenses
Selling expenses for the nine months ended June 30, 2019 increased 122.1% to $2,038 from $917 for the comparable fiscal 2018 period. This increase is mainly due to higher salaries and benefits for the additional sales employees from the Seventh Wave Laboratories and Smithers Avanza acquisitions, plus slightly higher travel expenses in the first nine months of fiscal 2019 as compared to the same period in the prior year.
Research and development expenses for the first nine months of fiscal 2019 decreased 7.7% over the comparable fiscal 2018 period to $397 from $430. The decrease was primarily due to lower consulting expenses slightly offset by increased salary expense as we sourced certain consulting services in-house.
General and administrative expenses for the first nine months of fiscal 2019 increased 80.5% to $6,332 from $3,510 for the comparable fiscal 2018 period. The increase was mainly driven by the expenses associated with the Seventh Wave Laboratories and Smithers Avanza operations plus higher salaries and benefits expense attributable to the hiring of our new Chief Executive Officer effective January 14, 2019, increased corporate insurance cost associated with the operations acquired via the Seventh Wave Acquisition, travel expense and integration activities related to the Smithers Avanza Acquisition, increased consulting and professional fees associated with the new entities and higher stock-based compensation expense attributable to grants to our CEO and option grants to existing and new employees hired in connection with the Smithers Avanza Acquisition. The increase was partly offset by the release of a portion of the reserve for lease-related liabilities that were legally time barred and the positive effect from the collection of fully reserved account receivable balances.
Other Income (Expense)
Other expense for the first nine months of fiscal 2019 increased to $421 from $144 for the same period of fiscal 2018. The primary reason for the change in expense was the increase in interest expense under our credit arrangements with First Internet Bank, as we entered into new loan agreements as part of the Seventh Wave Acquisition and Smithers Avanza Acquisition and entered into the construction and equipment loans in connection with the Evansville facilities expansion.
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Income Taxes
Our effective income tax rate for the nine months ended June 30, 2019 and 2018 was (0.2)% and 95.9%, respectively. The current year expense primarily relates to state income taxes. The prior year benefit relates to an Alternative Minimum Tax (AMT) credit carryforward that will be refundable due to AMT being repealed for corporations. This will be refundable for any tax year beginning after 2017 and before 2022 in an amount equal to 50% (100% for tax years beginning in 2021) of the excess minimum tax credit for the tax year, over the amount of the credit allowable for the year against regular tax liability.
Net Income (Loss)
As a result of the factors described above, net loss for the nine months ended June 30, 2019 amounted to $1,080, compared to net income of $6 in the comparable fiscal 2018 period.
Liquidity and Capital Resources
Comparative Cash Flow Analysis
At June 30, 2019, we had cash and cash equivalents of $506, compared to $773 at September 30, 2018.
Net cash provided by operating activities was $1,567 for the nine months ended June 30, 2019 compared to cash provided by operating activities of $2,210 for the nine months ended June 30, 2018. Contributing factors to our cash provided by operations in the first nine months of fiscal 2019 were noncash charges of $2,037 for depreciation and amortization, employee stock compensation expense of $206, net increase in accounts payable of $664, increase in customer advances of $912 and accrued expenses of $709. These items were partly offset by, among other items, a net increase in accounts receivable of $1,477, increase in prepaid expenses of $181, change in the provision for doubtful accounts of $166 and unrealized foreign currency gain of $147 related to the release of portions of lease liabilities from our former United Kingdom facility that are no longer payable.
Days’ sales in accounts receivable increased to 66 days at June 30, 2019 from 51 days at September 30, 2018 due primarily to an increase in accounts receivable and unbilled revenue balances related to the Smithers Avanza Acquisition as a result of timing of invoicing . It is not unusual to see a fluctuation in the Company's pattern of days’ sales in accounts receivable. Customers may expedite or delay payments from period-to-period for a variety of reasons including, but not limited to, the timing of capital raised to fund on-going research and development projects.
Included in operating activities for the first nine months of fiscal 2018 are non-cash charges of $1,160 for depreciation, employee stock compensation expense of $102, a net increase in customer advances of $1,406, and a net decrease in prepaid expenses of $311. These items were partly offset by, among other items, a net increase in accounts receivable of $523.
Investing activities used $5,801 in the first nine months of fiscal 2019 due mainly to capital expenditures of $4,530 and cash paid in acquisition of $1,271 as compared to a usage of $924 in the first nine months of fiscal 2018. The investing activity in fiscal 2019 consisted of investments in laboratory equipment and the Evansville expansion as well as new monitoring system.
Financing activities provided $3,967 in the first nine months of fiscal 2019, as compared to $262 used during the first nine months of fiscal 2018. The main sources of cash in the first nine months of fiscal 2019 were form borrowings on the Construction and Equipment loans for $2,012 and $499 respectively, borrowings on the long-term loan of $2,180, and net cash borrowed against the Revolving Facility of $572. The cash provided was partly offset by cash used for long-term debt payments of $1,089, debt issuance cost of $91 and capital lease payments of $82. The main uses of cash in the first nine months of fiscal 2018 were for long-term debt payments of $167 and capital lease payments of $96.
Capital Resources
Credit Facility
On June 23, 2017, we entered into a Credit Agreement with First Internet Bank of Indiana (“FIB”), which Credit Agreement as of June 30, 2019 had been amended on July 2, 2018, September 6, 2018, September 28, 2018 and May 1, 2019 (as amended, the “Credit Agreement”). The Credit Agreement includes three term loans (the “Initial Term Loan”, “Subsequent Term Loan,” and "New Term Loan," respectively), a revolving line of credit (the “Revolving Facility”), a construction draw loan (the “Construction Draw Loan”), an equipment draw loan (the “Equipment Draw Loan”), and a capital expenditure line of credit (the "Capex Line").
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The Initial Term Loan for $4,500 bears interest at a fixed rate of 3.99%, with monthly principal and interest payments of approximately $33. The Initial Term Loan matures in June 2022. The balance on the Initial Term Loan at June 30, 2019 was $4,048. We used the proceeds from the Initial Term Loan to satisfy our indebtedness with Huntington Bank and terminated the related interest rate swap.
The July 2, 2018 amendment to the Credit Facility provided the Company with the Subsequent Term Loan in the amount of $5,500, the proceeds of which were used to fund a portion of the cash consideration for the acquisition of Seventh Wave Laboratories LLC. Amounts outstanding under the Subsequent Term Loan bear interest at a fixed per annum rate of 5.06%, with monthly principal and interest payments equal to $78. The Subsequent Term Loan matures July 2, 2023 and the balance on the Subsequent Term Loan at June 30, 2019 was $4,887.
The Revolving Facility provides a line of credit for up to $3,500 which the Company may borrow from time to time, subject to the terms of the Credit Agreement, including as may be limited by the amount of the Company’s outstanding eligible receivables. The Revolving Credit Facility bears interest at the Prime Rate (generally defined as the highest rate identified as the “Prime Rate” in The Wall Street Journal “Money Rates” column on the date the interest rate is to be determined, or if that date is not a publication date, on the publication date immediately preceding) less Twenty-five (25) Basis Points (0.25%). The balance on the Revolving Facility was $572 and $0 as of June 30, 2019 and September 30, 2018, respectively. We must pay accrued and unpaid interest on the outstanding balance under the Revolving Facility on a monthly basis.
The September 28, 2018 amendment provided the Company with the Construction Draw Loan in a principal amount not to exceed $4,445 and the Equipment Draw Loan in a principal amount not to exceed $1,429. The Construction Draw Loan and Equipment Draw Loan each mature on March 28, 2025. As of June 30, 2019, there was a $2,012 balance on our Constructoin Draw Loan and a $499 balance on our Equipment Draw Loan.
Subject to certain conditions precedent, a Construction Draw Loan and an Equipment Draw Loan each permit the Company to obtain advances aggregating up to the maximum principal amount available for such loan through March 28, 2020. Amounts outstanding under these loans bear interest at a fixed per annum rate of 5.20%. The Construction Draw Loan and the Equipment Draw Loan each require monthly payments of accrued interest on amounts outstanding through March 28, 2020, and thereafter monthly payments of principal and interest on amounts then outstanding through maturity.
In connection with the Smithers Avanza Acquisition, on May 1, 2019, the Company and FIB entered into a fourth amendment (the “Fourth Amendment”) to the Credit Agreement to (i) extend the term of the Revolving Facility, (ii) provide the Company with an additional term loan (the “New Term Loan”) in the amount of $1,271, the proceeds of which were used to fund the cash consideration for the Smithers Avanza Acquisition, and (iii) provide for an additional line of credit in the principal amount of $1,100 (the “Capex Line”), which the Company may borrow from time to time, subject to the terms of the Credit Agreement. The New Term Loan and the Capex Line mature November 1, 2025 and June 30, 2020, respectively. As of June 30, 2019, the balances on the New Term Loan and Capex Line were $1,271 and $460, respectively.
Amounts outstanding under the New Term Loan bear interest at a fixed per annum rate of 4.63%, while interest accrues on the principal balance of the Capex Line at a floating per annum rate equal to the sum of the Prime Rate plus Fifty Basis Points (0.5%), which rate shall change concurrently with the Prime Rate. Commencing June 1, 2019, the New Term Loan requires monthly interest only payments until December 1, 2019, from which time payments of principal and interest in monthly installments of $20 become due, with all accrued but unpaid interest, cost and expenses due and payable at the maturity date. The Company is required to pay accrued but unpaid interest on the Capex Line on a monthly basis commencing on June 1, 2019, until June 30, 2020, at which time the entire balance of the Capex Line, together with accrued but unpaid interest, costs and expenses, shall be due and payable in full.
The Company’s obligations under the Credit Agreement are guaranteed by BAS Evansville, Inc. (“BASEV”), Seventh Wave Laboratories, LLC (“Seventh Wave”), as well as BASi Gaithersburg LLC (“BASi Gaithersburg”), each a wholly owned subsidiary of the Company. The Company’s obligations under the Credit Agreement and BASEV’s, Seventh Wave’s and BASi Gaithersburg’s obligations under their respective Guaranties are secured by first priority security interests in substantially all of the assets of the Company, BASEV, Seventh Wave and BASi Gaithersburg, respectively, as well as mortgages on the Company’s and BASEV’s facilities in West Lafayette, Indiana and Evansville, Indiana, respectively, and pledges of the Company’s ownership interests in its subsidiaries.
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The Credit Agreement contains various restrictive covenants, including restrictions on the Company's ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to shareholders or repurchase outstanding stock, enter into related party transactions and make capital expenditures, other than upon satisfaction of the conditions set forth in the Credit Agreement. The Credit Agreement also requires us to maintain (i) a minimum debt service coverage ratio of not less than 1.25 to 1.0 for the period ended June 30, 2019 (with ratios ranging from 1.25 to 1.0 to 1.15 to 1.0 for the periods thereafter) and (ii) beginning with the quarter ended March 31, 2020, a cash flow coverage ratio whereby, the ratio of the Company’s total funded debt (as defined in the Credit Agreement) as of the last day of each fiscal quarter to its EBITDA (as defined in the Credit Agreement) for the 12 months ended on such date may not exceed 4.50 to 1.00 (5.0 to 1.0 for the period ended March 31, 2020). Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, and defaults under other material indebtedness, FIB may cease advancing funds, increase the interest rate on outstanding balances, accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. The Company was in compliance with these covenants as of June 30, 2019. The Company has also agreed to obtain a life insurance policy in an amount not less than $2,000 for its President and Chief Executive Officer and to provide FIB an assignment of such life insurance policy as collateral.
On January 28, 2015, the Company entered into a lease agreement with Cook Biotech, Inc. with an initial lease term of 10 years. The lease agreement has and will provide the Company with additional cash in the range of approximately $50 per month during the first year of the initial term to approximately $57 per month during the final year of the initial term.
The Company’s sources of liquidity for fiscal 2019 are expected to consist primarily of cash generated from operations, cash on-hand and additional borrowings available under our Credit Agreement, as amended May 1, 2019. Management believes that the resources described above will be sufficient to fund operations, planned capital expenditures and working capital requirements over the next twelve months.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item 3.
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures.
Management performs periodic evaluations to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report was performed under the supervision and with the participation of management, which resulted in a determination by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures were effective as of June 30, 2019.
On July 2, 2018, we acquired substantially all of the assets of Seventh Wave Laboratories, LLC and on May 1, 2019 we acquired certain assets of Smithers Avanza Toxicology Laboratories, LLC. Operations acquired via the Seventh Wave Acquisition and the Smithers Avanza Acquisition constituted 24.7% and 12.0% of our total assets at June 30, 2019 and 30.4% and 4.9% of our revenues for the nine months ended June 30, 2019, respectively. As permitted by SEC guidance for newly acquired businesses, because it was not possible to complete an effective assessment of the acquired businesses’ internal controls over financial reporting as of June 30, 2019, the Company’s management has excluded such internal controls over financial reporting from its evaluation of the Company’s disclosure controls and procedures as disclosed herein. The Company’s management is in the process of reviewing the operations acquired via the Seventh Wave Acquisition and the Smithers Avanza Acquisition and implementing the Company’s internal control structure over the acquired operations.
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Changes in Internal Controls
Other than described above, there were no changes in the Company's internal control over financial reporting during the third quarter of fiscal 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Before investing in our securities you should carefully consider the risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, including those disclosed under the heading “Risk Factors” appearing in Item 1A of Part I of the Form 10-K, as well as the information contained in this Quarterly Report. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
The risks described in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q from time to time are not the only risks we face. New risk factors or risks that we currently deem immaterial emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business, financial condition and operating results, or the extent to which any such risk factor or combination of risk factors may impact our business, financial condition and operating results.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 1, 2019, the Company, through its wholly-owned subsidiary BASi Gaithersburg LLC (f/k/a Oriole Toxicology Services LLC), acquired from Smithers Avanza Toxicology Services LLC, substantially all of the assets used by Smithers Avanza Toxicology Services LLC in connection with the performance of in-vivo mammalian toxicology CRO services for pharmaceuticals (small molecules and biologics), vaccines, agro and industrial chemicals. Consideration for the Smithers Avanza Acquisition included 200,000 of the Company’s common shares valued at $394,000 using the closing price of the Company’s common shares on April 30, 2019. The common shares were sold by the Company to Smithers Avanza Toxicology Services LLC privately, in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, which exempts from registration transactions by an issuer not involving a public offering.
29 |
30 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
BIOANALYTICAL SYSTEMS, INC. | ||
(Registrant) | ||
Date: August 14, 2019 | By: | /s/ Robert W. Leasure, Jr. |
Robert W. Leasure, Jr. | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
Date: August 14, 2019 | By: | /s/ Jill C. Blumhoff |
Jill C. Blumhoff | ||
Chief Financial Officer and Vice President of | ||
Finance (Principal Financial Officer and | ||
Accounting Officer) |
31 |
Exhibit 2.1
Execution Version
ASSET PURCHASE AGREEMENT
among:
ORIOLE TOXICOLOGY SERVICES LLC, as Purchaser,
BIOANALYTICAL SYSTEMS, INC., as Parent
SMITHERS AVANZA TOXICOLOGY SERVICES LLC, as Seller,
and
THE SMITHERS GROUP, INC.
Dated May 1, 2019
TABLE OF CONTENTS
Page | ||
ARTICLE I | DEFINITIONS | 1 |
ARTICLE II | SALE AND PURCHASE OF ASSETS; RELATED TRANSACTIONS | 11 |
Section 2.1. | Sale and Purchase of Assets | 11 |
Section 2.2. | Excluded Assets | 13 |
Section 2.3. | Purchase Price | 13 |
Section 2.4. | Assumed Liabilities | 13 |
Section 2.5. | Transfer Taxes | 14 |
Section 2.6. | Allocation of Purchase Price; Withholding | 15 |
Section 2.7. | Closing | 15 |
Section 2.8. | Working Capital Adjustment | 18 |
Section 2.9. | Prorations | 19 |
Section 2.10. | Escrow Amount | 20 |
ARTICLE III | REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES | 21 |
Section 3.1. | Organization and Good Standing | 21 |
Section 3.2. | Title to Assets | 21 |
Section 3.3. | Accounts Receivable; Prepaid Amounts | 22 |
Section 3.4. | Intellectual Property | 22 |
Section 3.5. | Material Contracts | 23 |
Section 3.6. | Condition of Fixed Assets | 25 |
Section 3.7. | Compliance with Legal Requirements | 25 |
Section 3.8. | Employee Matters | 25 |
Section 3.9. | Employee Benefits | 26 |
Section 3.10. | Certain Liabilities | 28 |
Section 3.11. | Legal Proceedings | 29 |
Section 3.12. | Authority; Binding Nature of Agreement | 29 |
Section 3.13. | Non-Contravention; Required Consents | 30 |
Section 3.14. | Financial Statements | 31 |
Section 3.15. | Taxes | 31 |
Section 3.16. | Permits | 32 |
Section 3.17. | Subsequent Events | 32 |
Section 3.18. | Real Property | 32 |
Section 3.19. | Environmental Matters | 33 |
Section 3.20. | Insurance | 34 |
Section 3.21. | Transactions with Related Parties | 35 |
Section 3.22. | Customers and Vendors | 35 |
Section 3.23. | No Brokers or Finders | 35 |
Section 3.24. | No Additional Representations | 36 |
i |
ARTICLE IV | REPRESENTATIONS AND WARRANTIES OF PURCHASER | 36 |
Section 4.1. | Due Organization | 36 |
Section 4.2. | Matters | 36 |
Section 4.3. | Authority; Binding Nature of Agreement | 36 |
Section 4.4. | Non-Contravention; Consents | 37 |
Section 4.5. | Capital Structure | 37 |
Section 4.6. | SEC Filings | 38 |
Section 4.7. | No Brokers or Finders | 38 |
Section 4.8. | No Other Representations | 38 |
ARTICLE V | COVENANTS OF THE PARTIES | 39 |
Section 5.1. | Mutual Cooperation | 39 |
Section 5.2. | Preservation of Records | 39 |
Section 5.3. | Payments | 39 |
Section 5.4. | Employment Matters | 40 |
Section 5.5. | Contract Assignment and Consents | 42 |
Section 5.6. | Restrictive Covenants | 43 |
Section 5.7. | SEC Filings | 45 |
Section 5.8. | Financial Statements | 45 |
Section 5.9. | Change of Name | 46 |
Section 5.10. | Uncollected Receivables | 46 |
Section 5.11. | Taxes | 47 |
ARTICLE VI | INDEMNIFICATION | 47 |
Section 6.1. | Indemnification by Selling Parties | 47 |
Section 6.2. | Indemnification by Purchaser | 48 |
Section 6.3. | Survival | 48 |
Section 6.4. | Indemnification Procedures | 51 |
Section 6.5. | Payments; Escrow | 52 |
Section 6.6. | Treatment of Payments | 53 |
ARTICLE VII | MISCELLANEOUS | 53 |
Section 7.1. | Governing Law | 53 |
Section 7.2. | Venue and Jurisdiction | 53 |
Section 7.3. | Notices | 53 |
Section 7.4. | Public Announcements | 54 |
Section 7.5. | Assignment | 54 |
Section 7.6. | Parties in Interest | 54 |
Section 7.7. | Bulk Sales Laws | 55 |
Section 7.8. | Severability | 55 |
Section 7.9. | Specific Performance | 55 |
Section 7.10. | Entire Agreement | 55 |
Section 7.11. | Waiver | 55 |
ii |
Section 7.12. | Amendments | 55 |
Section 7.13. | Counterparts | 55 |
Section 7.14. | Interpretation of Agreement | 55 |
Section 7.15. | Expenses | 56 |
List of Exhibits and Schedules
Exhibit A | Seller Promissory Note |
Exhibit B | [Reserved] |
Exhibit C | Calculation of Net Working Capital |
Schedule 2.1(a) | Purchased Fixed Assets |
Schedule 2.1(d) | Purchased Prepaids |
Schedule 2.1(e) | Assumed Contracts |
Schedule 2.1(f) | Software |
Schedule 2.1(g) | Leased Real Property |
Schedule 2.1(h) | Domain Names, Numbers; Website |
Schedule 2.1(i) | Trade Secrets |
Schedule 2.1(j) | Permits |
Schedule 2.1(l) | Other Assets |
Schedule 2.2 | Excluded Assets |
Schedule 2.2(c) | Excluded Contracts |
Schedule 2.7(b)(x) | Payoff Letters |
Schedule 3.4(a) | Listed Intellectual Property |
Schedule 3.4(b) | Material Intellectual Property |
Schedule 3.4(e) | Upgrades to Information Systems |
Schedule 3.5(a) | Material Contracts |
Schedule 3.6(b) | Personal Property Leases |
Schedule 3.8 | Employees |
Schedule 3.8(a) | Foreign National Employees |
Schedule 3.9 | Employee Plans |
Schedule 3.9(j) | Severance Contracts |
Schedule 3.13(a) | Consents |
Schedule 3.14(a) | Financial Statements |
Schedule 3.18(a) | Real Property Leases |
Schedule 3.18(c) | Improvements |
Schedule 3.19 | Environmental Matters |
Schedule 3.19(h) | Environmental Permits and Documentation |
Schedule 3.20(a) | Insurance Policies |
Schedule 3.21(a) | Transactions with Related Parties |
Schedule 3.21(b) | Non-Arms-Length Contracts |
Schedule 3.22 | Customers and Vendors |
Schedule 5.8 | Restricted Names |
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this " Agreement ") is being entered into effective as of May 1, 2019 (the " Effective Date "), by and among Oriole Toxicology Services LLC, an Indiana limited liability company (" Purchaser "), Bioanalytical Systems, Inc., an Indiana corporation (" Parent "), Smithers Avanza Toxicology Services LLC, a Delaware limited liability company (" Seller "), and The Smithers Group, Inc. (the " Member "; and collectively with Seller, the " Selling Parties " and each individually a " Selling Party ").
RECITAL:
The parties hereto desire to provide for the purchase by Purchaser of substantially all of the assets used by Seller in connection with Seller's performance of in-vivo mammalian toxicology CRO services for pharmaceuticals (small molecules and biologics), vaccines, agro and industrial chemicals (collectively, the " Business "), and wish to provide for certain related transactions, on the terms and subject to the conditions and other provisions set forth in this Agreement.
NOW, THEREFORE, pursuant to the above Recital and in consideration of the mutual covenants and agreements set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE
I
DEFINITIONS
For purposes of this Agreement:
" 401(k) Plan " has the meaning set forth in Section 5.4(d) .
" ACA " has the meaning set forth in Section 3.9(n) .
" Affiliate " of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
" Allocation " has the meaning set forth in Section 2.8(a) .
" Annual Statements " has the meaning set forth in Section 3.14(a) .
" Assignment and Assumption Agreement " has the meaning set forth in Section 2.7(b)(iii) .
" Assumed Contracts " has the meaning set forth in Section 2.1(e) .
" Assumed Liabilities " has the meaning set forth in Section 2.4(a) .
" BASi Entities " has the meaning set forth in Section 5.6(e) .
" Bill of Sale " has the meaning set forth in Section 2.7(b)(ii) .
" Business " has the meaning set forth in the Recitals.
" Business Day " (whether or not capitalized) means any day that is not a Saturday or a Sunday or a day on which banks located in Indiana or Ohio are authorized or required to be closed.
" Business Employee " means any employee of Seller as of the day immediately prior to the Closing Date.
" CERCLA " means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.
" Claim Notice " has the meaning set forth in Section 6.4(a) .
" Closing " has the meaning set forth in Section 2.7(a) .
" Closing Cash " has the meaning set forth in Section 2.3(a) .
" Closing Date " has the meaning set forth in Section 2.7(a) .
" COBRA " means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, Section 4980B of the Code, Title I Part 6 of ERISA, and any similar state group health plan continuation law.
" COBRA Beneficiaries " has the meaning set forth in Section 5.4(i) .
" COBRA Coverage " has the meaning set forth in Section 5.4(f) .
" Code " means the Internal Revenue Code of 1986, as amended.
" Competitive Enterprise " has the meaning set forth in Section 5.6(a) .
" Confidential Information " means any information of Seller related to the Business, including methods of operation, customers, customer lists, products, prices, fees, costs, technology, inventions, trade secrets, know-how, software, marketing methods, plans, and information relating to Seller's personnel, vendors, competitors, markets or other specialized information or proprietary matters.
" Confirmation Certificate " has the meaning set forth in Section 2.8(c) .
" Consent " means any consent, approval or waiver.
" Continuing Unresolved Amount " has the meaning set forth in Section 2.10(b)(i) .
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" Contract " means any legally binding written or oral agreement, contract, subcontract, lease, instrument, note, option, warranty, purchase order, license, sublicense, mortgage or guarantee.
" Damages " means all damages, dues, penalties, fines, amounts paid in settlement, costs, obligations, Liabilities, injury, losses, decline or diminution in value, expenses, fees, interest, court costs, reasonable attorneys' fees and expenses and all reasonable amounts paid in investigation, defense or settlement of any of the foregoing and enforcement of rights including, as the context may require, any of the foregoing which arise out of or in connection with any Matter, charges, complaints, injunctions, judgments, decrees or rulings, but expressly excluding any incidental, consequential, punitive or exemplary damages, special damages, indirect damages, unrealized expectation, lost profits or other similar items.
" Direct Claim " has the meaning set forth in Section 6.4(c) .
" Disclosure Schedules " means the disclosure schedules delivered by Seller to Purchaser contemporaneously with the execution and delivery of the Agreement. References to Schedules in Article III of this Agreement refer to the corresponding section of the Disclosure Schedules.
" Dispute Notice " has the meaning set forth in Section 2.8(c) .
" Effective Date " has the meaning set forth in the Preamble.
" Employee Plans " means each employee benefit plan, as defined in Section 3(3) of ERISA, whether or not subject to ERISA, each employment, severance or similar contract and each other plan or arrangement (written or oral) providing for compensation, bonuses, commissions, profit-sharing, stock option or other stock-related rights or other forms of incentive or deferred compensation (including any such plans governed by Code Section 409A), vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, employee assistance program, disability or sick leave benefits, workers' compensation, supplemental unemployment benefits, severance benefits, post-employment or retirement benefits and other time-off benefits (including compensation, pension, health, medical or life insurance benefits) and other employee benefit arrangements, policies, or practices for which Seller (or any ERISA Affiliate) is a plan sponsor, as defined in Section 3(16)(B) of ERISA, or which Seller (or an ERISA Affiliate) otherwise maintains or to which Seller (or an ERISA Affiliate) otherwise contributes or has contributed, or in which Seller (or an ERISA Affiliate) participates or has participated or under which Seller (including by virtue of Seller’s ERISA Affiliates) may have any Liabilities.
" Enforceability Exceptions " has the meaning set forth in Section 3.12(a) .
" Environmental Claim " means any written notice or claim by any Person or any Authority alleging potential Liability (including potential Liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (a) the presence, release or threatened release into the environment of any Hazardous Substances at any location, whether or not owned, leased or operated by Seller or (b) any violation, or alleged violation, of any Environmental Requirement.
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" Environmental Documentation " has the meaning set forth in Section 3.19(h) .
" Environmental Permits " means all Permits required under any Environmental Requirement.
" Environmental Requirements " means all Legal Requirements and all judicial and administrative orders, in each case concerning public health and safety, and pollution or protection of the environment (including all those relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control or cleanup of any Hazardous Substances), each as amended and as now in effect.
" ERISA " means the Employee Retirement Income Security Act of 1974, as amended.
" ERISA Affiliate " means, with respect to any Person, any other Person that, together with such first Person, would be treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.
" Escrow Account " has the meaning set forth in Section 2.10(a) .
" Escrow Agent " has the meaning set forth in Section 2.10(a) .
" Escrow Agreement " has the meaning set forth in Section 2.10(a) .
" Escrow Amount " has the meaning set forth in Section 2.10(a) .
" Estimated Net Working Capital " means the estimated Net Working Capital as of 12:01 a.m. Eastern Time on the Closing Date, as the estimated Net Working Capital is set forth in the Net Working Capital Certificate.
" Estimated Deficit Net Working Capital Payment " means the amount, if any, by which the Minimum Net Working Capital exceeds the Estimated Net Working Capital.
" Estimated Excess Net Working Capital Payment " means the amount, if any, by which the Estimated Net Working Capital exceeds the Minimum Net Working Capital.
" Exchange Act " means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder.
" Excluded Assets " has the meaning set forth in Section 2.2 .
" Excluded Contracts " has the meaning set forth in Section 2.2 .
" Excluded Liabilities " has the meaning set forth in Section 2.4(b) .
" Facility " means Seller's vivarium facility located at 15 Firstfield Road, Gaithersburg, Maryland 20878.
" Final Net Working Capital Deficit " has the meaning set forth in Section 2.8(g) .
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" Financial Statements " has the meaning set forth in Section 3.14(a) .
" First Release Date " has the meaning set forth in Section 2.10(b)(i) .
" Fixed Assets " has the meaning set forth in Section 2.1(a) .
" Form 8-K " has the meaning set forth in Section 5.8 .
" Fraud " means a false representation of a fact made by a Selling Party in the making of a representation or warranty set forth in Article III or by Purchaser or Parent in Article IV , which false representation (a) was made with the intent to deceive the other party or to induce the other party to enter into this Agreement on the terms set forth herein, (b) was made with actual knowledge on the part of the persons identified in the definition of "Seller’s Knowledge" or "Buyer’s Knowledge" as applicable (as opposed to constructive, imputed or attributed knowledge of such persons of the truth) that, or reckless disregard as to whether, such representation was false, (c) caused the other party, in reasonable reliance upon such false representation and with ignorance to the falsity of such representation, to take or refrain from taking action, and (d) caused the other party to suffer damages by reason of such reliance.
" Fundamental Representations " shall include the representations set forth in the first sentence of Section 3.1 , Section 3.2(a) , Section 3.12(a) , Section 3.12(b) , Section 3.23 , the first sentence of Section 4.1 , Section 4.3 and Section 4.7 .
" GAAP " means United States generally accepted accounting principles, as in effect either from time to time as applied to periods prior to the Closing Date or as applied on the Closing Date, as applicable, and in either case, applied on a basis consistent with the past practices of Seller.
" Governmental Authority " means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official or ministry and any governmental court or other governmental tribunal); or (d) entity exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power.
" Hazardous Substances " means and includes any materials, chemicals, substances or wastes which, at the time of Closing, are regulated by any Governmental Authority under Environmental Laws now existing, including (a) materials, chemicals, substances and/or wastes regulated as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," "toxic wastes", "solid wastes," "regulated wastes," "pollutants," "contaminants," "radioactive materials," "radioactive wastes," and other similar terms and/or (b) petroleum and/or petroleum products, PCBs, asbestos, urea formaldehyde.
" Hired Employees " has the meaning set forth in Section 5.4(a) .
" Improvements " has the meaning set forth in Section 3.18(c) .
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" Indebtedness " means the unpaid principal amount of, accrued interest on, and prepayment penalties with respect to, all indebtedness for borrowed money of Seller, all obligations of Seller evidenced by bonds, debentures, notes or similar instruments, all obligations, contingent or otherwise, of Seller as an account party with respect to letters of credit and letters of guarantee (to the extent drawn upon at Closing) and all capital lease obligations of Seller.
" Indemnified Party " has the meaning set forth in Section 6.4(a) .
" Indemnifying Party " has the meaning set forth in Section 6.4(a) .
" Independent Accounting Firm " means the Akron, Ohio office of BDO USA, LLP, or, if such firm is not able or willing to serve, another mutually-agreeable nationally recognized firm of independent auditors that has not performed work for, and is otherwise independent of, Purchaser, Parent and any Selling Party.
" Information Systems " means the internal information and reporting systems owned by Seller that are used in its business or operations, including computer hardware systems, software applications and embedded systems.
" Intellectual Property " has the meaning set forth in Section 3.4(a) .
" Interim Statements " has the meaning set forth in Section 3.14(a) .
" Key Employee " shall mean Mike Dorato, Mike Brunty, Carol Spicer and Caitlin Murphy.
" Landlord " means Rickman Firstfield Associates.
" Legal Requirement " means any law, rule, decree, statute, order, regulation, ordinance, directive, code, judgment, injunction, or binding judicial precedent that is legally promulgated or issued by any Governmental Authority.
" Liabilities " means debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, known or unknown, including those arising under any applicable Legal Requirement or Contract, including any liabilities or obligations for Taxes.
" Liens " has the meaning set forth in Section 3.2(a) .
" Material Adverse Effect " means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise), prospects or assets of the Business, (b) the value of the Purchased Assets, or (c) the ability of Seller to consummate the transactions contemplated hereby on a timely basis; provided , however , that none of the following will be deemed, either alone or in combination, to constitute, and none of the following will be taken into account in determining whether there has been, or would reasonably expected to be, a "Material Adverse Effect" except, in the case of clauses (i), (ii), (iii) and (v) below, to the extent Seller is disproportionately affected by such event, occurrence, fact, condition or change in comparison to others in the industry in which it operates: (i) changes in economic conditions affecting the economy or the Seller’s industry generally; (ii) changes in stock markets or credit markets; (iii) changes in Tax rates, Law or GAAP, or the enactment or implementation of any new Legal Requirement or Tax, in each case after the date hereof; (iv) any event or circumstance disclosed in the Disclosure Letter; (v) natural disasters, acts of war, sabotage, terrorism, hostilities, military action or any escalation or worsening thereof; or (vi) any failure of Seller to meet any projections, estimates or forecasts (financial, operational or otherwise) for any period (it being understood that the facts and occurrences giving rise or contributing to such failure, to the extent not otherwise excluded by another clause of this definition, may be taken into account in determining whether there has been a Material Adverse Effect).
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" Matter " means any judicial or administrative or arbitral action, mediation, claim (including counterclaim), demand, action, suit, proceeding or other similar matter.
" Member " has the meaning set forth in the Preamble.
" Minimum Net Working Capital " means $365,592.71.
" Net Working Capital " means the current assets included in the Purchased Assets, consisting of the assets shown as included in current assets on Exhibit C , minus the current liabilities included in the Assumed Liabilities, consisting of the liabilities shown as included in current liabilities on Exhibit C , in each case, determined in accordance with GAAP, consistently applied, as of 12:01 a.m. Eastern Time on the Closing Date, provided that the amount of any Purchased Receivables that remain unpaid on the 120 th day following the Closing Date shall be deducted from Net Working Capital.
" Net Working Capital Certificate " has the meaning set forth in Section 2.7(c) .
" Net Working Capital Statement " has the meaning set forth in Section 2.8(a) .
" New Lease " has the meaning set forth in Section 2.7(d)(xii) .
" Non-Assignable Contract " has the meaning set forth in Section 5.5 .
" Order " means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award of a Governmental Authority.
" Parent Common Shares " has the meaning set forth in Section 2.3(b) .
" Parent " has the meaning set forth in the introductory paragraph of the Agreement.
" Parent Equity Award " means a Parent Stock Option or a Parent RSU, as the case may be.
" Parent Preferred Shares " has the meaning set forth in Section 4.5(a) .
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" Parent RSU " means a restricted stock unit granted under any Parent Stock Plan.
" Parent Securities " has the meaning set forth in Section 4.5(c) .
" Parent Stock Option " means any option to purchase Parent Common Shares granted under any Parent Stock Plan.
" Parent Stock Plan " means the following plans, in each case as amended: Bioanalytical Systems, Inc. 2008 Stock Option Plan and Bioanalytical Systems, Inc. 2018 Equity Incentive Plan.
" Permit " means any licenses, permits, certificates and certifications (including certificates of occupancy), variances, exemptions, registrations, accreditations, approvals, consents or authorizations of any Governmental Authority.
" Permitted Liens " has the meaning set forth in Section 3.2(a) .
" Person " means any individual, corporation, general partnership, limited partnership, limited liability company, trust, association, firm, organization, company, business, entity, union, society or Governmental Authority.
" Personal Property Leases " means all leases of personal property relating to the property used by Seller in the Business or to which Seller is a party or by which any of the properties or assets of Seller is bound.
" Personnel " means any director, manager, officer, employee, consultant, agent or other personnel of Seller or of Purchaser, as applicable.
" Pre-Closing Tax Period " has the meaning set forth in Section 2.4(b) .
" Purchase Price " has the meaning set forth in Section 2.3 .
" Purchased Assets " has the meaning set forth in Section 2.1 .
" Purchased Fixed Assets " has the meaning set forth in Section 2.1(a) .
" Purchased Intellectual Property " has the meaning set forth in Section 2.1(b) .
" Purchased Prepaids " has the meaning set forth in Section 2.1(d) .
" Purchased Receivables " has the meaning set forth in Section 2.1(c) .
" Purchaser " has the meaning set forth in the introductory paragraph of the Agreement.
" Purchaser Indemnified Parties " and " Purchaser Indemnified Party " have the meaning set forth in Section 6.1 .
" Purchaser Receipts " has the meaning set forth in Section 5.10 .
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" Purchaser Welfare Plan " has the meaning set forth in Section 5.4(f) .
" Qualified Benefit Plan " has the meaning set forth in Section 3.9(b) .
" Real Property " means all real property leased by Seller in connection with the Business pursuant to the terms of the Real Property Leases, together with all improvements and fixtures thereon and all easements and appurtenances thereunto belonging pursuant to the terms of the Real Property Leases.
" Real Property Leases " has the meaning set forth in Section 3.18(a) .
" Recipient " has the meaning set forth in Section 3.12(c) .
" Receipts " has the meaning set forth in Section 5.3 .
" Registered Intellectual Property " has the meaning set forth in Section 3.4(a) .
" Related Party " means (a) any Affiliate of any Selling Party (other than Seller), and (b) any director or officer of Seller and any member of their immediately family or their respective Affiliates.
" Rep Cap " has the meaning set forth in Section 6.3(c) .
" Repaid Closing Indebtedness " has the meaning set forth in Section 2.7(b)(ix) .
" Representatives " means Affiliates, directors, officers, employees, prospective financing sources, accountants, counsel, investment bankers, advisors or other agents.
" Required Consent " has the meaning set forth in Section 5.5 .
" Restricted Area " includes each of the following:
(a) Any country, state or other jurisdiction in which Seller performed any service or sold or marketed any products at any time during the 12 months prior to the Closing Date;
(b) Each state, commonwealth, territory and other political subdivision of the United States of America;
(c) Each state or jurisdiction within the United States in which Seller performed any services or sold or marketed any products at any time during the 12 months prior to the Closing Date;
(e) The States of Indiana and Maryland;
(f) Each county in Indiana and in Maryland and any other state where Seller performed any services or sold or marketed any products during the 12 months prior to the Closing Date;
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(g) Each state or jurisdiction in which Seller has a physical presence (through an office or facility or otherwise) on the Closing Date; and
(h) Within a one (1) mile radius of the location of a Person who was a customer of the Business at any time during the 12 months prior to the Closing Date.
" Restricted Party " shall mean each Selling Party.
" Restricted Period " has the meaning set forth in Section 5.6(a) .
" Rule 144 " means 17 CFR 230.144.
" Second Release Date " has the meaning set forth in Section 2.10(b)(ii) .
" SEC " has the meaning set forth in Section 5.8 .
" Securities Act " means the Securities Act of 1933, as amended, and the regulations promulgated thereunder.
" Seller " has the meaning set forth in the Preamble.
" Seller Indemnified Parties " and " Seller Indemnified Party " have the meaning set forth in Section 6.2 .
" Seller Plan " has the meaning set forth in Section 3.9(a) .
" Seller Promissory Note " has the meaning set forth in Section 2.3(b) .
" Seller SEC Financial Statements " has the meaning set forth in Section 5.8 .
" Seller's Knowledge " means the actual knowledge of Mike Dorato, Mike Brunty, Carol Spicer and Caitlin Murphy, after reasonable inquiry.
" Selling Parties " and " Selling Party " have the meaning set forth in the Preamble.
" Set-Off Rights " has the meaning set forth in Section 6.5(b) .
" Straddle Period " has the meaning set forth in Section 5.11(a) .
" Tax Return " means any return, declaration, report, claim for refund, election, disclosure, estimate or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, required to be filed with any Governmental Authority with respect to Taxes.
" Taxes " means (a) all federal, state, local and foreign taxes (including income or profits taxes, premium taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes, ad valorem taxes, goods and services taxes), severance taxes, capital levy taxes, transfer taxes, value added taxes, employment and payroll-related taxes, real and personal property taxes, real property assessments, business license taxes, occupation taxes, import duties, escheat obligations and other governmental charges and assessments), of any kind whatsoever, including interest, additions to tax and penalties with respect thereto, (b) liability for any such items described in clause (a) that is imposed by reason of U.S. Treasury Regulation §1.1502-6 or similar Legal Requirement, and (c) liability for any such items described in clause (a) imposed on any transferee or indemnitor, by contract or otherwise.
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" Third Party " means any Person, other than Purchaser, Seller, or any of their respective Affiliates.
" Third Party Claim " has the meaning set forth in Section 6.4(a) .
" Threshold Amount " has the meaning set forth in Section 6.3(b) .
" Transaction Documents " means: (a) the Agreement; (b) the Assignment and Assumption Agreement; (c) the Bill of Sale; (d) the Escrow Agreement; (e) the Seller Promissory Note, (f) the Transition Services Agreement, and (g) any such other assignments, bills of sale, agreements, documents and certificates as may be contemplated hereby.
" Transfer Taxes " has the meaning set forth in Section 2.5 .
" Transition Services Agreement " means the Transition Services Agreement of even date herewith between Seller and Purchaser providing for certain services to be provided by Purchaser to Seller and Seller to Purchaser following the Closing Date.
" Uncollected Receivables " means any Purchased Receivable or portion thereof that remains unpaid on the 120 th day following the Closing Date that is deducted in the calculation of Net Working Capital.
" Union " has the meaning set forth in Section 3.8(b) .
" WARN Act " means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar Laws related to plant closings, relocations, mass layoffs and employment losses.
" Workers’ Compensation Event " has the meaning set forth in Section 5.4(g) .
ARTICLE
II
SALE AND PURCHASE OF ASSETS; RELATED TRANSACTIONS
Section 2.1 . Sale and Purchase of Assets . On the terms and subject to the conditions and other provisions set forth in this Agreement, at the Closing, Seller will sell, assign, transfer, convey and deliver to Purchaser, free and clear of all Liens (other than Permitted Liens), and Purchaser shall purchase, all of Seller’s assets, properties and rights used in or useful to the operation of the Business, including the following assets, but excluding the Excluded Assets (subject to Section 2.2 , the " Purchased Assets "):
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(a) Fixed Assets . All equipment, vehicles, furniture, furnishings, fixtures, computer hardware and all items of tangible personal property (the " Fixed Assets ") identified on Schedule 2.1(a) (the " Purchased Fixed Assets ");
(b) Intellectual Property . All Intellectual Property and all rights to licensed Intellectual Property (the " Purchased Intellectual Property ");
(c) Accounts Receivable . All accounts receivable arising out of the Business (the " Purchased Receivables ");
(d) Prepaids . The prepaid expenses, advance payments (if any), and prepaid items of Seller arising out of the Business as set forth on Schedule 2.1(d) (the " Purchased Prepaids ");
(e) Contracts . Subject to Section 2.2(c) and Section 5.5 , all of Seller's rights as of the Closing under all of the Contracts and other instruments specifically identified on Schedule 2.1(e) (the " Assumed Contracts ");
(f) Permits . All of the Permits issued in connection with the Business and pending applications therefor but only to the extent assignable by law, including those set forth on Schedule 2.1(f) ;
(g) Claims . All claims of Seller against third parties relating to the Purchased Assets, whether choate or inchoate, known or unknown, contingent or noncontingent, including all rights under or pursuant to any warranties, representations and guarantees made by vendors, contractors or other Persons in connection with any products or services provided to Seller in connection with the Business;
(h) Other Assets . All other assets, tangible or intangible, rights, privileges or interests (other than the Excluded Assets), including those items set forth in Schedule 2.1(h) ;
(i) Records . All books, records, manuals, files and other documentation, whether written, electronic or otherwise, used or held for use in the Business, including customer records, vendor lists, record and sample archives (including stored and/or retained materials and samples from previous studies), distributor lists, purchase and sale records, price lists, correspondence, quality control records, research and development files, drawings, blue prints, and designs but to the extent such records are not transferable under Legal Requirement, excluding personnel records for Business Employees; provided, however, that, to the extent permitted by Legal Requirement, Purchaser shall be entitled to make copies of any excluded records as it reasonably believes pertain to the Purchased Assets; and
(j) Goodwill . All goodwill of the Business or associated with the foregoing Purchased Assets.
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Section 2.2 . Excluded Assets . Notwithstanding anything to the contrary contained in Section 2.1 , Seller shall not sell or transfer to Purchaser, and the Purchased Assets will not be deemed to include: (a) cash and cash equivalents and investments in stocks, bonds and other securities; (b) any Fixed Assets that are not listed on Schedule 2.1(a) ; (c) those Contracts that are set forth on Schedule 2.2(c) (the " Excluded Contracts "); (d) Seller's corporate records and minute book; (e) all Financial Statements, Tax Returns, and other tax records and related information of Seller (provided Seller shall provide copies thereof for periods ending on or prior to the Closing as reasonably requested by Purchaser); (f) all insurance policies owned or maintained by Seller and all rights thereunder related to the Excluded Assets or Excluded Liabilities; (g) all claims for refund of Taxes and other governmental charges of whatever nature; (h) all rights in connection with and assets of the Employee Plans; (i) the rights of Seller under this Agreement and any of the Transaction Documents; (j) all prepaid insurance or insurance benefits, including rights and proceeds therefrom; (k) all claims of Seller against third parties relating to the Excluded Assets, whether choate or inchoate, known or unknown, contingent or noncontingent, including all rights under or pursuant to any warranties, representations and guarantees made by vendors, contractors or other Persons in connection with any Excluded Asset; (l) any assets used both in the Business by Seller and by Affiliates of Seller outside the Business and that are set forth on Schedule 2.2(l) ; and (m) the assets specifically identified on Schedule 2.2(m) (collectively, the " Excluded Assets ").
Section 2.3 . Purchase Price . As consideration for the sale of the Purchased Assets to Purchaser, Purchaser will:
(a) pay at the Closing to Seller, by wire transfer of immediately available funds, an amount in cash equal to: (i) One Million Two Hundred Seventy Thousand Six Hundred Forty-Six and 10/100 Dollars ($1,270,646.10); plus (ii) the Estimated Excess Net Working Capital Payment, if any; less (iii) the Escrow Amount deposited with the Escrow Agent; less (iv) an amount equal to the Repaid Closing Indebtedness, if any, which amount shall be paid to the Persons or bank accounts and in the amounts specified in the payoff letters delivered pursuant to Section 2.7(b) ; and less (v) the Estimated Deficit Net Working Capital Payment, if any (such amount, the " Closing Cash ");
(b) issue at the Closing to Seller an unsecured subordinated promissory note in the form of Exhibit A in the initial principal amount of Eight Hundred Ten Thousand Dollars ($810,000.00) (the " Seller Promissory Note ");
(c) deliver at the Closing to Seller Two Hundred Thousand (200,000) Common Shares of Parent (the " Parent Common Shares "); and
(d) assume at the Closing and agree to pay, perform and discharge on a timely basis the Assumed Liabilities.
Collectively, the aggregate value of the amounts paid or issued, as applicable, in clauses (a), (b), (c) and (d) above (subject to adjustment as set forth in Section 2.8 below), shall be referred to as the " Purchase Price ".
Section 2.4 . Assumed Liabilities .
(a) Purchaser shall assume and agree to pay, perform and discharge on a timely basis only the following Liabilities of Seller (collectively, the " Assumed Liabilities "):
(i) all of the Liabilities of Seller (excluding Liabilities for any breach or default that occurred prior to the Closing) related to future payment or performance under or relating to the Assumed Contracts (but not any liability arising out of or related to performance prior to the Closing); and
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(ii) the current Liabilities of Seller (other than accounts payable), to the extent of the amount reflected in the final calculation of the Net Working Capital.
(b) Except for the Assumed Liabilities, Purchaser shall not assume or be responsible for any Liabilities of any Selling Party or any ERISA Affiliate or other Affiliate of any Selling Party (or any predecessor of Seller or any prior owner of all or part of its business or assets) that are not expressly included in the definition of Assumed Liabilities (all such Liabilities not being assumed by Purchaser being herein referred to as the " Excluded Liabilities "). For the avoidance of doubt and without limiting the foregoing, the Excluded Liabilities include all Liabilities of any Selling Party, any ERISA Affiliate and their respective Affiliates: (i) for Taxes, (ii) with respect to the Business or the Purchased Assets, Taxes for any Tax period (or portion thereof) ending prior to the Closing Date, including, for the avoidance of doubt, the portion of any Straddle Period prior to the Closing Date (the " Pre-Closing Tax Period "), (iii) any Liability of any Selling Party for the unpaid Taxes of any Person under Regulation §1.1502-6 (or any similar provision of state, local, or non-U.S. law), as a transferee or successor, by contract, or otherwise, (iv) relating to a Contract of Seller that is not an Assumed Contract, (v) arising under this Agreement, (vi) to the extent arising out of, relating to or otherwise in respect of any Employee Plan; (vii) related to performance prior to the Closing under any Assumed Contract or that arises after the Closing but that relates to any breach or default that occurred prior to the Closing, (viii) with respect to any accrued bonuses as of the Closing of the Business Employees, (ix) relating to the termination of employment of any Business Employee(s) by Seller in connection with the transactions contemplated by this Agreement, including any severance payments or change of control payments, any obligations under applicable local, state, federal or foreign legal requirements (including the Worker Adjustment and Retraining Notification Act (WARN) and similar Legal Requirements and any applicable business transfer laws and similar Legal Requirements), (x) relating to floating holidays, paid time off (PTO), sick leave, or vacation owed by Seller to the Business Employees for all periods prior to the Closing, (xi) arising under or in connection with the Excluded Assets, (xii) pursuant to Environmental Laws, including Liabilities arising from or related to (1) the condition or operation of any Real Property prior to the Closing, (2) any other properties or facilities owned, operated, occupied and/or otherwise used by Seller or its Affiliates, or (3) the operation of the Business prior to the Closing, (xiii) related to any Excluded Contract, (xiv) arising from any Indebtedness of Seller, (xv) relating to any intercompany Liabilities or amounts due by Seller to Affiliates, whether current portion or otherwise, and (xvi) related to trade payables, such as purchasing accruals or deferred compensation (provided that to the extent any Liabilities are included in the calculation of Net Working Capital, such Liabilities shall be Assumed Liabilities).
Section 2.5 . Transfer Taxes . Each of Seller and Purchaser shall bear and pay fifty percent (50%) of all sales taxes, use taxes, transfer taxes, documentary charges, value added taxes, recording fees, filing fees or similar taxes, charges, fees or expenses that may become payable in connection with the sale or purchase of the Purchased Assets from Seller (" Transfer Taxes "). The party required by any Legal Requirement to file a Tax Return with respect to such Transfer Taxes shall do so within the time period prescribed by such Legal Requirement. Purchaser and Seller shall use commercially reasonable efforts, to the extent permitted by applicable Legal Requirements, to minimize any applicable Transfer Taxes.
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Section 2.6 . Allocation of Purchase Price; Withholding .
(a) For purposes of complying with the requirements of Section 1060 of the Code and the Treasury Regulations thereunder, the consideration for the Purchased Assets shall be allocated among the Purchased Assets in accordance with their respective fair market values as agreed to between Purchaser and Seller no later than 75 days after the Closing Date and provided in the allocation schedule (the " Allocation ") (which Allocation shall be adjusted to reflect changes in the Net Working Capital and the Purchase Price in accordance with Section 2.8 ). For the avoidance of doubt, the Allocation shall not apply for purposes of GAAP.
(b) Except as otherwise required by applicable Legal Requirement, each party hereto agrees to prepare its federal, state and foreign income Tax Returns for all current and future tax reporting periods and file Form 8594 (and corresponding state forms) with respect to the purchase of the Purchased Assets in a manner consistent with the Allocation. If any state, federal or foreign taxing authority challenges the Allocation, the party receiving notice of such challenge shall give the other party prompt written notice of such challenge and the parties shall cooperate in good faith in responding to it in order to preserve the effectiveness of the Allocation.
(c) Notwithstanding any other provision of this Agreement to the contrary, Purchaser shall be entitled to deduct and withhold from any amounts payable to any Person pursuant to this Agreement such amounts as it is required to deduct and withhold under or in respect of any provision of U.S. federal, state, local or non-U.S. Tax Law; provided, that prior to any such deduction and withholding, Purchaser shall provide Seller with two (2) Business Days’ notice of its intent to deduct and withhold amounts from any such payments. Any amounts so deducted and withheld shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such amount was payable to prior to any such deduction or withholding. Upon the request of Seller, Purchaser shall reasonably cooperate with Seller to reduce or mitigate any such withholdings; provided, that such cooperation does not impose any material cost or other adverse consequence to Purchaser or any Affiliate of Purchaser.
Section 2.7 . Closing .
(a) The closing of the transactions contemplated by this Agreement (the " Closing ") shall take place concurrently with the execution of this Agreement on the date hereof (the " Closing Date ") and shall be effective as of 12:01 a.m. (Eastern Time) on the Closing Date. In lieu of an in-person Closing, the Closing may instead be accomplished by facsimile or email (in PDF format) transmission to the respective offices of legal counsel for the parties of the requisite documents, duly executed where required, delivered upon actual confirmed receipt.
(b) At the Closing, Seller shall deliver (or cause to be delivered) to Purchaser, originals or copies, if specified, of the following:
(i) a counterpart of this Agreement, duly executed by Seller and the Member;
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(ii) one or more bills of sale (the " Bill of Sale "), transferring the tangible personal property included in the Purchased Assets to Purchaser;
(iii) one or more assignment and assumption agreements (the " Assignment and Assumption Agreement ") effecting the assignment to and the assumption by Purchaser of the Purchased Assets and the Assumed Liabilities;
(iv) a counterpart to the Transition Services Agreement, duly executed by Seller;
(v) a counterpart of the Escrow Agreement, duly executed by Seller;
(vi) certificates of good standing (or similar certificates) for Seller, dated not more than ten (10) calendar days prior to the Closing Date, issued by the Secretary of State of the State of Delaware and a certificate of qualification to do business as a foreign limited liability company issued by the Secretary of State of the State of Maryland dated within ten (10) Business Days of the Closing;
(vii) copies of resolutions adopted by the Member and the Manager of Seller authorizing and approving the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, certified to be true, complete, correct and in full force and effect by the Manager of Seller;
(viii) copies of (i) the certified Certificate of Formation (or equivalent) of Seller, including all amendments thereto, and (ii) the Limited Liability Company Agreement of Seller, including all amendments thereto, each certified as true, complete and correct and in full force and effect on the Closing Date by the Manager of Seller;
(ix) payoff letters for each instrument evidencing all outstanding Indebtedness of Seller from the obligees thereunder set forth on Schedule 2.7(b)(ix) (the " Repaid Closing Indebtedness "), setting forth the amounts necessary to pay off all such Repaid Closing Indebtedness under such instrument as of the Closing Date along with the per diem interest amount with respect thereto, and evidence reasonably satisfactory to Purchaser of the release of all Liens (other than Permitted Liens) on the Purchased Assets and all UCC financing statements related thereto; and
(x) the Consents set forth on Schedule 2.7(b)(x) .
(c) Seller has delivered to Purchaser a certificate setting forth the calculation of the Estimated Net Working Capital, including the amount of the Estimated Deficit Net Working Capital Payment or the Estimated Excess Net Working Capital Payment, as the case may be, if any (the " Net Working Capital Certificate ").
(d) At the Closing, Purchaser shall deliver (or cause to be delivered) the following agreements, documents and other items:
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(i) to Seller and the Member, this Agreement, duly executed by Purchaser and Parent;
(ii) to Seller, the Closing Cash;
(iii) to Seller, the Seller Promissory Note, duly executed by Purchaser;
(iv) to Seller, one or more certificates, or confirmations of registration in uncertificated form by book-entry in the registration system of Parent's transfer agent, representing the Parent Common Shares to be issued to Seller at the Closing pursuant to Section 2.3(c) .
(v) to the Escrow Agent, the Escrow Amount;
(vi) to Seller, a signed counterpart to the Assignment and Assumption Agreement;
(vii) to Seller, a signed counterpart to the Transition Services Agreement;
(viii) to Seller, a counterpart to the Escrow Agreement signed by Purchaser and the Escrow Agent;
(ix) to Seller, a certificate of existence for the Purchaser and the Parent, dated not more than ten (10) calendar days prior to the Closing Date, issued by the Secretary of State of the State of Indiana;
(x) to Seller, copies of resolutions adopted by Purchaser and Parent authorizing and approving the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, certified to be true, complete, correct and in full force and effect by the Secretary of Parent;
(xi) to Seller, copies of (i) the certified Articles of Incorporation (or equivalent) of Purchaser and Parent, including all amendments thereto, and (ii) the Bylaws (or equivalent) of each of Purchaser and Parent, including all amendments thereto, each certified as true, complete and correct and in full force and effect on the Closing Date by the Secretary of Parent; and
(xii) At or prior to the Closing, Purchaser shall have entered into a lease or sublease for the Facility on terms and conditions mutually agreed between Purchaser and Landlord (the " New Lease ").
(e) Purchaser has reached agreement with each of the Key Employees on employment arrangements for employment by Purchaser of the Key Employees.
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Section 2.8 . Working Capital Adjustment .
(a) Not more than one hundred twenty-five (125) days following the Closing Date, Purchaser shall deliver to Seller a statement of the actual Net Working Capital determined as of the Closing Date (the " Net Working Capital Statement "). During such one hundred twenty-five (125) day period, the Selling Parties shall provide to Purchaser and its Representatives reasonable access during normal business hours (or such other times as the parties may agree) and upon reasonable advance notice, to such books, records and Personnel of the Selling Parties as may be necessary to prepare the Net Working Capital Statement. The Net Working Capital Statement shall be prepared in the manner and consistent with the basis, including the basis of calculation of individual line items and the determination of allowances and reserves, used to prepare Exhibit C .
(b) Following the delivery by Purchaser of the Net Working Capital Statement, Seller and its Representatives shall be given all such access as they may reasonably request during Purchaser's normal business hours (or such other times as the parties may agree) and upon reasonable advance notice to those books and records of Purchaser and access to such personnel or Representatives of Purchaser they may reasonably require for the purposes of resolving any disputes or responding to any matters or inquiries raised concerning the Net Working Capital Statement or the calculation of the Net Working Capital as proposed by Purchaser.
(c) Seller shall have thirty (30) days following the date of receipt of the Net Working Capital Statement to provide Purchaser with a written certificate confirming that the Net Working Capital as proposed by Purchaser is acceptable (the " Confirmation Certificate ") or notifying Purchaser in writing of any good faith objections to the calculation of the Net Working Capital as proposed by Purchaser (a " Dispute Notice ") setting forth a reasonably specific and detailed description of such objections. If a Confirmation Certificate is delivered by Seller pursuant to this Section 2.8(c) (or if Seller fails to timely deliver either a Confirmation Certificate or a Dispute Notice), the Net Working Capital proposed by Purchaser shall be binding on the parties hereto.
(d) If Seller objects to the Net Working Capital Statement or Purchaser's calculation of the Net Working Capital, as reflected in a Dispute Notice, Seller, on the one hand, and Purchaser, on the other, shall attempt in good faith to resolve any such objection within thirty (30) days of the receipt by Purchaser of such Dispute Notice.
(e) If Purchaser and Seller are unable to resolve any such dispute within such thirty (30) day period, Purchaser and Seller (either together or separately) shall be entitled to submit the dispute to the Independent Accounting Firm. Each of the parties hereto shall, and shall cause their respective Representatives to, provide reasonable cooperation to the Independent Accounting Firm. The Independent Accounting Firm shall (i) consider only those matters as to which there is a dispute between the parties hereto, and (ii) be instructed to reach its conclusions regarding any such dispute within thirty (30) days after its appointment and provide a written explanation of its decision. In the event that Purchaser and Seller shall submit any dispute to the Independent Accounting Firm, each such party may submit a "position paper" to the Independent Accounting Firm setting forth the position of such party with respect to such dispute, to be considered by the Independent Accounting Firm as it deems fit. The fees and disbursements of the Independent Accounting Firm acting under this Section 2.8(e) shall be apportioned between Seller and Purchaser (as determined by the Independent Accounting Firm) based on the total dollar value of disputed exceptions resolved in favor of each such party, with each such party bearing such percentage of the fees and disbursements of the Independent Accounting Firm as the aggregate disputed exceptions resolved against that party bears to the total dollar value of all disputed exceptions considered by the Independent Accounting Firm. The Independent Accounting Firm's determination of Net Working Capital shall not be less than the amount proposed by Purchaser in the Net Working Capital Statement, nor shall it be greater than the amount proposed by Seller in the Dispute Notice.
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(f) If Seller does not deliver a Dispute Notice in accordance with the procedures set forth in Section 2.8(c) (i.e., within the thirty (30) day period specified therein), the Net Working Capital Statement (together with Purchaser's calculation of the Net Working Capital) shall be deemed to have been accepted by the parties hereto and such calculation of the Net Working Capital shall be binding. In the event that Seller delivers a Dispute Notice in accordance with the provisions above and Purchaser and Seller are able to resolve such dispute by mutual agreement, the Net Working Capital Statement, together with the calculation of the Net Working Capital, as modified by the mutual agreement of parties hereto, shall be deemed to have been accepted by the parties and such revised calculation of the Net Working Capital shall be binding on the parties for all purposes hereof. In the event that Seller delivers a Dispute Notice in accordance with the provisions set forth above and Purchaser and Seller are unable to resolve such dispute by mutual agreement, the determination of the Independent Accounting Firm shall be final and binding on the parties hereto, and the Net Working Capital Statement, together with the calculation of the Net Working Capital, as modified by the report of the Independent Accounting Firm, shall be deemed to have been accepted by the parties hereto and such revised calculation of the Net Working Capital shall be final and binding on the parties for all purposes hereof.
(g) Within five (5) Business Days after the determination of the actual Net Working Capital becomes final and binding, (i) if the actual Net Working Capital is less than the Estimated Net Working Capital (a " Final Net Working Capital Deficit" ), Purchaser shall be entitled to a distribution from the Escrow Account on the First Release Date in the amount of such Final Net Working Capital Deficit; provided that, in the event that the amount of such Final Net Working Capital Deficit is greater than $36,560, the amount of any such distribution to Purchaser from the Escrow Account shall be $36,560 and Seller shall pay Purchaser the difference between the amount of such Final Net Working Capital Deficit and $36,560, and (ii) if the actual Net Working Capital is greater than the Estimated Net Working Capital, Purchaser shall pay Seller the difference between the actual Net Working Capital and the Estimated Net Working Capital.
Section 2.9 . Prorations . All Taxes, assessments, utilities, insurance, rents and water charges for any leased premises that is the subject of an Assumed Contract will be prorated as of the Closing Date between Purchaser and Seller at Closing. At Closing, Purchaser will pay and reimburse Seller for the total amount of all prepaid rents, security deposits (and any accrued interest), any other prepaid occupancy expenses and any other prepaid expenses related to the Purchased Assets or Assumed Liabilities paid by Seller on or before the Closing in connection with any period after the Closing. Following Closing, Seller will reimburse Purchaser for the total amount of any occupancy expenses charged to Purchaser after Closing by landlords of any leased premises that is the subject of an Assumed Contract that relate to any period prior to the Closing, such as annual reconciliations for common area maintenance charges and real estate taxes.
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Section 2.10 . Escrow Amount .
(a) At Closing, Purchaser shall deposit One Hundred Sixty-One Thousand Five Hundred Sixty Dollars ($161,560) (the " Escrow Amount ") into escrow pursuant to the Escrow Agreement. U.S. Bank National Association, as the escrow agent (the " Escrow Agent "), shall hold the Escrow Amount and all interest and other amounts earned thereon in an escrow account (the " Escrow Account ") for purposes of securing any amounts payable by the Selling Parties on account of any and all indemnification obligations under Section 6.1 hereof and certain other amounts payable hereunder in accordance with this Agreement and the Escrow Agreement of even date herewith among Seller, Purchaser and Escrow Agent (the " Escrow Agreement ").
(b) The Escrow Amount and any interest accrued thereon shall be released from the Escrow Account and paid over to Seller or Purchaser, as the case may be, by confirmed wire transfer of immediately available funds, as follows:
(i) on the fifth Business Day following the determination of actual Net Working Capital pursuant to Section 2.8 (the " First Release Date "), the Escrow Agent shall disburse (A) to Seller the difference between (1) $36,560, minus (2) any Final Net Working Capital Deficit, minus (3) the amount of all indemnity claims asserted by the Purchaser Indemnified Parties in good faith pursuant to Section 6.1 and which remain unpaid or in dispute (a " Continuing Unresolved Amount ") as of the First Release Date, plus all interest accrued on the distributed amount, and (B) to Purchaser, subject to the proviso in Section 2.8(g)(i) , the amount of any Final Net Working Capital Deficit, if any; and
(ii) on the date that is eighteen (18) months following the Closing Date (the " Second Release Date "), the Escrow Agent shall disburse to Seller the balance of the Escrow Account minus the Continuing Unresolved Amount as of the Second Release Date.
Any Continuing Unresolved Amount withheld from release after the Second Release Date and finally determined not to be subject to indemnification by the Selling Parties in accordance with this Agreement, shall be released to Seller by confirmed wire transfer of immediately available funds within three (3) Business Days following such determination.
(c) Purchaser, on one hand, and Seller, on the other hand, shall each pay fifty percent (50%) of the fees, expenses and costs associated with establishing and maintaining the Escrow Account in accordance with this Agreement and the Escrow Agreement.
(d) Purchaser and Seller agree to promptly provide the Escrow Agent with jointly-executed written instructions to disburse or retain the Escrow Amount (or a portion thereof, as applicable) from the Escrow Account in accordance with this Agreement and the Escrow Agreement; provided , that the release described in Section 2.10(b)(ii) shall be automatically disbursed by the Escrow Agent and shall not require jointly-executed written instructions.
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ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
Seller represents and warrants to Purchaser, except as set forth in the Disclosure Schedules, as follows with respect to all representations and warranties in this Article III other than Section 3.12(b) . Member represents and warrants to Purchaser, except as set forth in the Disclosure Schedules, as follows with respect to the representations and warranties in Section 3.12(b) . Seller and Member, on a several and not joint basis, represent and warrant to Purchaser, except as set forth in the Disclosure Schedules, as follows with respect to Sections 3.12(c) and (d) .
Section 3.1 . Organization and Good Standing . Seller is a limited liability company duly organized, validly existing and in good standing under the laws of its state of organization and has all requisite company power and authority to own, lease and operate its properties and to carry on its business as now conducted. Seller is duly qualified or authorized to do business as a foreign limited liability company and is in good standing under the laws of each jurisdiction in which it owns or leases real property and each other jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization, except where any failure to be so qualified or authorized would not have a Material Adverse Effect. Seller has delivered to Purchaser true, complete and correct copies of each of its certificates of formation and operating agreement or comparable organizational documents as in effect on the date hereof.
Section 3.2 . Title to Assets .
(a) Seller has good, marketable and valid title to the Purchased Assets, free and clear of any security interest, mortgage, pledge, lien (including liens under any mortgage or deed of trust, mechanic's or materialmen's liens and judgment liens), option, debt, charge, encumbrance, covenant or restriction of any kind or character (collectively, " Liens "), except for (a) any Lien for current Taxes not yet due and payable, (b) liens and encumbrances arising under the Assumed Contracts, (c) minor liens and encumbrances that have arisen in the ordinary course of business and that do not, individually or in the aggregate, materially detract from the value of the Purchased Assets subject thereto and which do not secure the payment of any amounts owed, (d) Liens arising by operation of Legal Requirements, including Liens arising by virtue of rights of customers, suppliers and subcontractors in the ordinary course of business under general principles of commercial Legal Requirements; (e) the Real Property Leases, (f) easements, covenants, rights-of-way and other similar restrictions or conditions of record or which would be shown by a current accurate survey of any of the Real Property, (g) zoning, building and other similar restrictions imposed by applicable Legal Requirements, to the extent Seller and the applicable Real Property are not in violation of such applicable Legal Requirements, or (h) any Lien under the Transaction Documents ((a) – (h) collectively, the " Permitted Liens ").
(b) Other than the Excluded Assets, the Purchased Assets constitute all of the properties, assets and leasehold estates, real, personal and mixed, tangible and intangible, comprising or used in the operation of or associated with the Business and are sufficient to conduct the Business as conducted by Seller as of the Closing.
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Section 3.3 . Accounts Receivable; Prepaid Amounts .
(a) All of the Purchased Receivables represent valid obligations of customers of Seller arising in the ordinary course of business and in connection with bona fide transactions and are payable on ordinary terms. Except to the extent expressly included in the reserves for doubtful or uncollectible accounts reflected in the calculation of Net Working Capital, all Purchased Receivables are good and collectible at the aggregate recorded amounts thereof, and none of the Purchased Receivables are subject to any defense or any claim of offset, recoupment, setoff or counter claim. None of the Purchased Receivables is subject to prior assignment.
(b) The Purchased Prepaids represent advance payments in respect of expenses that could reasonably be expected to be incurred in connection with the Business. The Purchased Prepaids arose in the ordinary course of business, consistent with past practices, and have been paid to a Person with whom Seller deals at arm's length.
Section 3.4 . Intellectual Property .
(a) Schedule 3.4(a) sets forth a list of: (i) all unexpired patents, pending patent applications, registered trademarks, registered service marks, pending trademark or service mark applications, all Internet domain names, telephone numbers, facsimile numbers, registrations and applications therefor, material copyright registrations or pending applications therefor, in each case applied for or registered in the name of, Seller, or in which Seller has any rights and used or held for use in the conduct of the Business as currently conducted, including the application or registration number, the jurisdiction and the record owner (the " Registered Intellectual Property "); and (ii) all proprietary Software owned by Seller and used or held for use in the conduct of the Business as currently conducted. Seller owns adequate rights or possesses adequate and enforceable license rights, (i) free and clear of all Liens (other than Liens to be released at the Closing), to use all Registered Intellectual Property (except in each case as enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance and other similar Laws affecting creditors' rights generally and by general principles of equity) and (ii) to use all other material intellectual property (including patents, patent applications, patent disclosures and related patent rights (including any continuations, divisions, reissues, reexaminations, renewals, or extensions thereof); trademarks, trademark registrations, trademark applications, trade dress rights, trade names, service marks, service mark registrations and service mark applications; copyrights, copyright registrations and copyright applications; mask work rights, mask work registrations and mark work applications; Internet domain names, Internet and World Wide Web URLs or addresses and registrations or applications therefor; inventions, unfiled invention disclosures, improvements, trade secrets, know-how and proprietary processes and formulae; moral and economic rights of authors and inventors, however denominated; and any tangible embodiments of the foregoing) necessary to permit Seller to conduct its business as currently conducted (the Registered Intellectual Property, such other intellectual property rights and all worldwide statutory and common law rights associated therewith, the " Intellectual Property "). The conduct of the Business as conducted by Seller since January 1, 2016, including the use of the Intellectual Property in connection therewith, has not infringed on or misappropriated and is not now infringing on or misappropriating any intellectual property right belonging to any Person. No claim is pending or, to Seller's Knowledge, threatened to the effect that any Intellectual Property owned by Seller is invalid or unenforceable. To Seller's Knowledge, no Person is infringing or violating any of the Registered Intellectual Property or any other material Intellectual Property of Seller.
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(b) No Personnel or independent contractor of Seller has contributed to or participated in the discovery, creation or development of any Intellectual Property on behalf of Seller except for such discoveries, creations or development activities by employees of Seller in the course of their employment.
(c) The Information Systems are functioning and reasonably sufficient for the purposes for which they have been designed. Seller owns or possesses a license to use all Intellectual Property necessary to operate the Information Systems, without, to Seller’s Knowledge, any conflict with, or infringement of, the rights of others. There are no material upgrades or additions required to be made to the Information Systems to meet the demands of the Business as currently conducted.
Section 3.5 . Material Contracts .
(a) Schedule 3.5(a) lists each of the following Contracts (x) by which any of the Purchased Assets are bound or affected or (y) to which Seller is a party or by which it is bound in connection with the Business or the Purchased Assets (together with all Real Property Leases listed in Schedule 3.18(a) , collectively, the " Material Contracts "):
(i) any Contract (or group of related Contracts) for the furnishing or receipt of products or services, in each case, the performance of which will extend over a period of more than one year or which provides for annual payments to or by Seller in excess of $50,000;
(ii) (A) any capital lease or (B) any other lease or other Contract relating to equipment and machinery providing for annual rental payments in excess of $10,000, under which any such equipment and machinery are held or used by Seller;
(iii) any Contract, other than leases relating to equipment and machinery, relating to the lease or license of any Purchased Assets, including any Purchased Intellectual Property, other than commercial off-the-shelf software or non-exclusive licenses of Intellectual Property pursuant to customer agreements;
(iv) any Contract relating to the Purchased Intellectual Property, including, without limitation, Contracts relating to the development of such Purchased Intellectual Property, other than commercial off-the-shelf software or Contracts where the granting of rights to any Intellectual Property is not the object of the Contract (such as a customer agreement in which a party grants the other party a non-exclusive license of Intellectual Property);
(v) any Contract relating to the acquisition or disposition of (i) any business of Seller (whether by merger, consolidation, or other business combination, sale of securities, sale of assets or otherwise), or (ii) any asset of Seller for an amount in excess of $10,000, other than in the ordinary course of business;
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(vi) any Contract under which Seller is, or may become, obligated to pay any amount in respect of indemnification obligations, purchase price adjustment or otherwise in connection with any (A) acquisition or disposition of assets or securities, (B) merger, consolidation or other business combination, or (C) series or group of related transactions or events of the type specified in clauses (A) and (B) above;
(vii) all employment, severance, consulting, bonus, profit-sharing, percentage compensation, deferred compensation, pension, welfare, retirement, equity purchase or equity option plans and agreements and any similar compensatory arrangement with the current (or former to the extent still in effect) Personnel of Seller;
(viii) any Contract (or group of related Contracts) (A) under which Seller has created, incurred, assumed or guaranteed any Indebtedness in excess of $10,000 or (B) under which Seller has permitted any of its assets to become encumbered;
(ix) any Contract relating to any joint venture, partnership, limited liability company, strategic alliance or sharing of profits or losses with any Person;
(x) any Contract containing covenants purporting to limit the freedom of Seller or any of its current Personnel to compete in any business or in any geographic area;
(xi) any agency, dealer, distributor, sales representative, service provider, consignment, marketing or similar Contract;
(xii) any Personal Property Lease that requires annual payments of more than $10,000;
(xiii) any Contract not made in the ordinary course of business;
(xiv) any Contract providing for termination, retention, change in control or similar payments to any Personnel of Seller; and
(xv) any Contract that provides any customer with pricing, discounts or benefits that change based on the pricing, discounts or benefits offered to other customers of Seller, including any Contract which contains a "most favored nation" provision.
(b) Seller has provided Purchaser with true and complete copies of all written Material Contracts and each amendment, supplement, waiver or modification thereto. Seller is not a party to any oral Material Contract that is an Assumed Contract. All of the Material Contracts identified on or required to be identified on Schedule 3.5(a) are legal, valid, binding obligations of Seller and enforceable in accordance with their respective terms with respect to Seller, subject to the Enforceability Exceptions, and, to Seller’s Knowledge, with respect to each other party to such Material Contracts, and are in full force and effect. Neither Seller nor, to Seller's Knowledge, any other party thereto, has materially breached any provision of, or is in material default under the terms of, nor does, to Seller’s Knowledge, any condition exist which, with or without notice or lapse of time, or both, would cause Seller or any other party, to be in material default under any of the Material Contracts or would constitute a material breach or material default or permit termination, modification or acceleration under any such Material Contract. Since December 31, 2018, Seller has not (i) received any written notice of cancellation or termination or change in material terms (including, pricing, term and volume) of any such Material Contract or (ii) obtained or granted any waiver of or under any provision of any such Material Contract, except for routine waivers granted or sought in the ordinary course of business.
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Section 3.6 . Condition of Fixed Assets . All items of personal property included in the Purchased Fixed Assets and all items of personal property that are subject to the Personal Property Leases are in reasonably good operating condition and repair, ordinary wear and tear excepted.
Section 3.7 . Compliance with Legal Requirements . Seller is in compliance in all material respects with all Legal Requirements relating to the use of the Purchased Assets or applicable to the operation of the Business. Since January 1, 2016, Seller has not received any written notice from any Governmental Authority alleging any material failure to comply with any Legal Requirement relating to the use of the Purchased Assets or applicable to the operation of the Business. Seller is not, to Seller’s Knowledge, under investigation by a Governmental Authority with respect to any violation of any Legal Requirement relating to the Purchased Assets or the Business.
Section 3.8 . Employee Matters.
(a) Schedule 3.8 correctly sets forth the name and current annual salary of each employee of Seller and whether any employees are absent from active employment, including, but not limited to, leave of absence or disability. Except as set forth on Schedule 3.8 , (a) since January 1, 2016, Seller has complied in all material respects with all Legal Requirements relating to the employment of labor (including provisions thereof relating to wages, hours, equal opportunity, employment classification, exempt status classification, collective bargaining, immigration and the payment of social security and other Taxes), and, to Seller's Knowledge, Seller does not have any material labor relations problems (including any union organization activities, threatened or actual strikes or work stoppages or material grievances) against Seller, and (b) to Seller's Knowledge, none of the employees of Seller are subject to any non-compete, nondisclosure, confidentiality, employment, consulting or similar agreements relating to, affecting or in conflict with the present or proposed business activities of Seller except for agreements between Seller and its present and former employees. Seller does not have any foreign national employees.
(b) Seller is not, and since January 1, 2016 has not been, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, " Union "), and there is not, and since January 1, 2016 there has not been, any Union representing or purporting to represent any employee of Seller, and, to Seller’s Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining.
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(c) Seller has not since January 1, 2016 effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility, nor has Seller been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar Legal Requirement. None of the Business Employees has suffered an "employment loss" (as defined in the WARN Act) during the previous six (6) months.
Section 3.9 . Employee Benefits.
(a) Schedule 3.9 sets forth a list of all Employee Plans (individually referred to as a " Seller Plan "). Seller has furnished to Purchaser (i) accurate and complete copies of all documents constituting each Seller Plan to the extent currently effective, including all amendments thereto and all related trust documents (or, in the case of any unwritten Seller Plans, written descriptions thereof), (ii) the three most recent annual reports (Form 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Seller Plan, (iii) if a Seller Plan is funded, the most recent annual and periodic accounting of such Seller Plan’s assets, (iv) the most recent summary plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Seller Plan, (v) all material written contracts relating to each Seller Plan to the extent currently effective, including administrative service agreements and group insurance contracts, (vi) all testing results and documentation under Code Sections 415, 410(b), 414(s), 401(k) and 401(m) for each Seller Plan, as applicable, for the three immediately preceding plan years and (vii) all material correspondence within the past three years to or from any governmental authority relating to any Seller Plan.
(b) Each Seller Plan has been established and, since January 1, 2016, administered and maintained, in all material respects, in accordance with its terms and in material compliance with all applicable Legal Requirements (including ERISA and the Code). Each Seller Plan that is intended to be qualified under Section 401(a) of the Code (a " Qualified Benefit Plan ") is so qualified and has received a favorable and current determination letter from the Internal Revenue Service, or with respect to a pre-approved prototype or volume submitter plan, can rely on an opinion letter from the Internal Revenue Service to the prototype or volume submitter plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and, to Seller’s Knowledge, nothing has occurred that would reasonably be expected to cause the revocation of such determination letter from the Internal Revenue Service or the unavailability of reliance on such opinion letter from the Internal Revenue Service, as applicable, nor has such revocation or unavailability been threatened. Nothing has occurred with respect to any Seller Plan that has subjected or, to Seller’s Knowledge, would reasonably be expected to subject, Seller or Purchaser to a penalty based on Section 502 of ERISA or to tax or penalty under Section 4975 of the Code. Since January 1, 2016, all material benefits, contributions and premiums relating to each Seller Plan have been timely paid in accordance with the terms of such Seller Plan and all applicable Legal Requirements and accounting principles.
(c) Neither Seller nor any of its ERISA Affiliates has: (i) incurred, or reasonably expects to incur, either directly or indirectly, any material liability under Title I or Title IV of ERISA or related provisions of the Code relating to employee benefit plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; or (iii) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA.
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(d) With respect to each Seller Plan: (i) no such plan is a "multiple employer plan" within the meaning of Section 413(c) of the Code or a "multiple employer welfare arrangement" as defined in Section 3(40) of ERISA; (ii) no litigation has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan; (iii) no such plan is subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code; and (iv) no "reportable event," as defined in Section 4043 of ERISA, has occurred with respect to any such plan.
(e) Neither Seller nor any ERISA Affiliate (nor any predecessor thereof) sponsors, maintains or contributes to, or has in the past sponsored, maintained or contributed to, any Seller Plan subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Neither Seller nor any ERISA Affiliate (nor any predecessor thereof) contributes to, is required to contribute to (on a contingent basis or otherwise) or has in the past contributed to or been required to contribute to, or has any Liabilities with respect to, any multiemployer plan, as defined in Section 3(37) of ERISA.
(g) There is no pending or, to Seller's Knowledge, threatened Matter relating to a Seller Plan (other than routine claims for benefits) and no Seller Plan has, since January 1, 2016, been the subject of an examination or audit by a governmental authority or the subject of an application or filing under or is a participant in an amnesty, voluntary compliance, self-correction or similar program sponsored by any governmental entity.
(h) There has been no amendment to, announcement by Seller relating to or change in employee participation or coverage under any Seller Plan that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee, independent contractor or consultant, as applicable.
(i) Each Seller Plan that is subject to Section 409A of the Code has been operated in material compliance with such section and all applicable regulatory guidance (including notices, rulings and proposed and final regulations).
(j) The consummation of the transactions contemplated by this Agreement will not (either alone or together with any other event, including a subsequent termination of employment or service) entitle any employee or independent contractor of Seller to severance pay or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, or increase the amount payable or trigger any other material obligation pursuant to, any Seller Plan. There is no contract covering any employee or other service provider of Seller that, considered individually or considered collectively with any other such contracts, will, or would reasonably be expected to, give rise directly or indirectly to the payment of any amount that would be characterized as a "parachute payment" within the meaning of Section 280G(b)(2) of the Code. There is no contract by which Seller is bound to compensate any employee for excise taxes paid pursuant to Section 4999 of the Code. Schedule 3.9(j) sets forth an accurate and complete list of all of the contracts which give rise to an obligation to make or set aside amounts payable to or on behalf of the officers of Seller as a result of the transactions contemplated by this Agreement and/or any subsequent employment termination (whether by Seller or the officer), true and complete copies of which have been previously provided to Purchaser.
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(k) Neither Seller nor any ERISA Affiliate has any current or projected liability in respect of post-employment or post-retirement health, medical or life insurance benefits for retired, former or current employees of Seller or any ERISA Affiliate, except as required to avoid excise tax under Section 4980B of the Code or except for the continuation of coverage through the end of the calendar month in which termination from employment occurs. No condition exists that would prevent Seller or any ERISA Affiliate from amending or terminating any Seller Plan that is an "employee welfare benefit plan" as defined in Section 3(1) of ERISA.
(l) Neither Seller nor any ERISA Affiliate (nor any predecessor thereof) sponsors, maintains or contributes to, or has in the past sponsored, maintained or contributed to, any Seller Plan which is maintained for the benefit of any employee or service provider (or former employee or service provider) who performs services outside the United States.
(m) Since January 1, 2016, Seller has complied in all material respects with the health care coverage continuation requirements of COBRA, to the extent applicable.
(n) Since January 1, 2016, Seller has complied in all material respects with the applicable provisions of the Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 (collectively, the " ACA ") including all provisions of the ACA applicable to the Business Employees, including the employer shared responsibility provisions relating to the offer of "minimum essential coverage" to "full-time" employees that is "affordable" and provides "minimum value" (as defined in Code Section 4980H and related regulations) and the applicable employer information reporting provisions under Code Sections 6055 and 6056 (and all related regulations). For the avoidance of doubt, since January 1, 2016, Seller has offered "minimum essential coverage" (as defined under Code Section 5000A(f)(1)(B)) to the Business Employees who are classified as "full-time employees" under Code Section 4980H and their dependents in accordance with such Code section and applicable regulations. Such minimum essential coverage has been "affordable" and has provided "minimum value" (each within the meaning of Code §36B(c)(2)(C) and §4980H(b) and related regulations). Since January 1, 2016, Seller has complied in all material respects with applicable information reporting requirements under Code Sections 6055 and 6056 (and all applicable regulations) with respect to the Business Employees and their dependents.
Section 3.10 . Certain Liabilities . As of the date of this Agreement, Seller has no material Liabilities relating to the Purchased Assets or the Business other than (a) Liabilities incurred in the ordinary course of business and consistent with past practices, (b) Liabilities set forth in the Financial Statements, and (c) Liabilities that would not be required to be disclosed on a balance sheet prepared in accordance with GAAP and which are not, individually or in the aggregate, material to Seller or the Business.
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Section 3.11 . Legal Proceedings .
(a) There is no Matter pending or, to Seller's Knowledge, threatened against Seller, or to which Seller is otherwise a party.
(b) There is no Matter pending or, to Seller's Knowledge, threatened against Seller that challenges or would reasonably be expected to affect, prevent, delay or make illegal any of the transactions contemplated by this Agreement or the Transaction Documents or result in a Material Adverse Effect.
(c) Seller is not subject to any Order, and Seller is not in breach of any Order.
(d) Seller is not engaged in any legal action to recover monies due it or for Damages sustained by it.
(e) To Seller's Knowledge, no investigation is threatened or contemplated by any Governmental Authority in respect of the Business or the Purchased Assets.
Section 3.12 . Authority; Binding Nature of Agreement .
(a) Seller has all necessary limited liability company power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its respective obligations under this Agreement and the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby; and the execution, delivery and performance by Seller of this Agreement and the Transaction Documents have been duly authorized by all necessary action on the part of Seller, its Manager and its Member. This Agreement has been, and each Transaction Document will be at or prior to Closing, duly and validly executed and delivered by Seller and this Agreement constitutes, and, upon execution and delivery thereof, each of the Transaction Documents to which Seller is a party will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies (the " Enforceability Exceptions ").
(b) The Member has all necessary authority and legal capacity to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its respective obligations under this Agreement and the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and each Transaction Document to which the Member is a party will be at or prior to Closing duly and validly executed and delivered by the Member and this Agreement constitutes, and, upon execution and delivery thereof, each of the Transaction Documents to which the Member is a party will constitute, the valid and binding obligation of the Member, enforceable against the Member in accordance with its terms, subject to the Enforceability Exceptions.
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(c) Each Selling Party being issued any Parent Common Shares, whether directly by Parent or indirectly following a distribution by Seller (each, a " Recipient ") is an "accredited investor" within the meaning of Rule 501 of Regulation D, as presently in effect, under the Securities Act. Such Recipient is acquiring the Parent Common Shares for investment for such Recipient's own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Such Recipient further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any of the Parent Common Shares. Such Recipient acknowledges that the Parent Common Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Such Recipient is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares subject to the satisfaction of certain conditions. Such Recipient has such knowledge and experience in financial and business matters so that Recipient is capable of evaluating the merits and risks of its investment in the Parent. Such Recipient has had an opportunity to ask questions of, and receive answers from, the officers of the Parent concerning the Parent's business, management and financial affairs, which questions were answered to such Person's complete and total satisfaction. Such Recipient has received all the information it considers necessary or appropriate for deciding whether to acquire the Parent Common Shares. Except as set forth herein, such Recipient is not relying on any statements or representations of the Parent or its agents for legal advice with respect to the acquisition of Parent Common Shares.
(d) Each Recipient acknowledges that, to the extent applicable, each certificate evidencing the Parent Common Shares shall be endorsed with the legends substantially in the form set forth below, as well as any additional legend imposed or required by the Parent's Bylaws or applicable state securities laws:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
Section 3.13 . Non-Contravention; Required Consents .
(a) Except as set forth on Schedule 3.13(a) , the execution and delivery by Seller of this Agreement and the Transaction Documents, the consummation of the transactions contemplated hereby and thereby, and compliance by Seller with any of the provisions hereof or thereof will not result in any violation or breach of, or conflict with or cause a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or give rise to any obligation of Seller to make any payment under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Liens upon any of the properties or assets of Seller under any provision of: (i) the certificate of formation or operating agreement or other charter or organizational documents of Seller; (ii) any material Permit or any Assumed Contract; (iii) any Order applicable to Seller or by which any of the properties or assets of Seller are bound; or (iv) any applicable Legal Requirement.
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(b) Except as set forth on Schedule 3.13(a) , no Consent, Permit or authorization of or filing with, or notification to, any Person or Governmental Authority is required on the part of Seller in connection with (i) the execution and delivery of this Agreement or the Transaction Documents, the compliance by Seller with any of the provisions hereof or thereof, the consummation of the transactions contemplated hereby or thereby or the taking by Seller of any action contemplated hereby or thereby, or (ii) the continuing validity and effectiveness immediately following the Closing of any Assumed Contract or material Permit.
Section 3.14 . Financial Statements .
(a) Seller's fiscal year ends on December 31 of each year. Schedule 3.14(a) contains true and complete copies of the (i) internally prepared balance sheet and statements of income and cash flows of the Business as of, and for the annual periods ended, December 31, 2018 and 2017 (the " Annual Statements "), and (ii) the unaudited balance sheets and statements of income and cash flow of the Business as of, and for the three (3) month period ended March 31, 2019 (the " Interim Statements ," and collectively with the Annual Statements, the " Financial Statements ").
(b) Each of the Financial Statements was prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and each fairly presents, in all material respects, the financial position, results of operations and cash flows of Seller as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein; provided, however, that the Annual Statements lack footnotes and the Interim Statements are subject to normal year-end adjustments and lack footnotes.
Section 3.15 . Taxes . Since January 1, 2016, all Tax Returns required to be filed by Seller with respect to the Business and the Purchased Assets for all taxable periods ending prior to the date hereof have been or will be duly and timely (within any applicable extension periods) filed with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed and have been prepared in material compliance with applicable Legal Requirements. All Taxes that are due and payable with respect to the Business, including any applicable sales taxes with respect to sales of products, have been timely paid. All Taxes that Seller is required to withhold or collect pursuant to Legal Requirements have been duly and timely withheld or collected and have been timely paid over to the appropriate Governmental Authority to the extent due and payable. All Taxes required to be withheld or collected by Seller on or prior to the Closing Date from the Hired Employees (including Persons designated as independent contractors) have been properly withheld and, if required on or prior to the Closing Date, have been deposited with, or paid as directed by, the appropriate Governmental Authority. There are no audits of Tax Returns of Seller pending or, to Seller's Knowledge, threatened, and all past audits of Tax Returns of Seller, if any, have been settled. There are no deficiencies proposed or assessed as a result of any pending audit. Seller is not a party to any pending or, to Seller's Knowledge, threatened action or proceeding against Seller for the assessment or collection of Taxes by any Governmental Authority. There are no Liens on the Purchased Assets for Taxes (other than Taxes that are not yet due and payable). Seller has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a tax assessment or deficiency. Seller is not the beneficiary of any extension of time within which to file any Tax Return with respect to the Business. Since January 1, 2016, no claim has been made by a Governmental Authority in a jurisdiction where Seller does not file Tax Returns that the Business is or may be subject to taxation by that jurisdiction. Seller has not been a party to any "listed transaction", as defined in Code §6707A(c)(1) and Reg. §1.6011-4(b). The Member is a United States person as defined in the Code. None of the Assumed Liabilities is an obligation to make a payment that is not deductible under Code §280G. The Seller has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code §6662. Seller is not a party to any Tax allocation or sharing agreement. Seller has (A) never been a member of an affiliated group (within the meaning Section 1504(a) of the Code or any similar provision of state, local, or foreign law) filing a consolidated income Tax Return, and (B) no liability for the Taxes of any Person under Treasury Regulations §1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee, successor, by contract, or otherwise.
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Section 3.16 . Permits . Seller is in possession of all Permits reasonably necessary for Seller to own, lease and operate its properties or to carry on its business as it is now being conducted. As of the date of this Agreement, no suspension or cancellation of any of such Permits is pending or, to Seller's Knowledge, threatened. Seller is not, in any material respect, in conflict with, or in default, breach or violation of, any such Permit.
Section 3.17 . Subsequent Events . Since December 31, 2018, (a) Seller has conducted the Business in the ordinary course of business; and (b) there has not been, with respect to the Business, any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or would reasonably be expected to have, a Material Adverse Effect. Without limiting the generality of the foregoing, since December 31, 2018, Seller has not: (a) sold, leased, transferred, pledged, encumbered or assigned any of the assets of the Business outside the ordinary course of business; (b) entered into any Material Contract (or series of related Material Contracts) other than in the ordinary course of business; (c) accelerated, terminated, modified or canceled any Material Contract (or Contract that would have been a Material Contract had it not been terminated or canceled) except in the ordinary course of business and, to Seller's knowledge, no other party has done so as a result of any default by Seller; (d) accelerated, waived, wrote-off or canceled the payment of any accounts receivable outside the ordinary course of business; (e) canceled, compromised, waived or released any material right or claim (or series of related rights and claims) outside the ordinary course of business; (f) granted any license or sublicense of any rights under or with respect to any Intellectual Property outside the ordinary course of business; (g) experienced any material damage, destruction or loss to the assets of the Business; (h) experienced any material adverse change in personnel or relationships with third parties, including customers and vendors, other than immaterial changes which occur in the ordinary course of business; (i) changed in any material respect accounting or Tax reporting principles, methods or policies; or (j) entered into any commitment to do any of the foregoing.
Section 3.18 . Real Property .
(a) Schedule 3.18(a) sets forth a complete list of each real property lease and all amendments, extensions, supplements, letter agreements, renewals and writings exercising rights therewith, to which Seller is a party or by which it is bound (collectively, the " Real Property Leases "). Seller has provided to Purchaser true, correct and complete copies of each of the Real Property Leases.
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(b) Except for the property described in the Transition Services Agreement, the Real Property Leases constitute all interests in real property currently used, occupied or currently held for use in connection with the Business and which are necessary for the continued operation of the Business as currently conducted by Seller.
(c) All of the buildings, fixtures, equipment and improvements, and all components thereof located on the land associated with the Real Property Leases (the " Improvements ") (i) to Seller’s Knowledge, are in good operating condition without structural defects and all mechanical and other systems located thereon are in reasonably good operating condition (reasonable wear and tear excepted), and no condition currently exists requiring material repairs, alterations or corrections and (ii) are suitable and sufficient in all material respects for their current uses by Seller and, to Seller’s Knowledge, there are no facts or conditions affecting any of the Improvements which would, individually or in the aggregate, interfere in any material respect with the use or occupancy of the Improvements or any portion thereof in the operation of the Business.
(d) Seller has a valid, binding and enforceable leasehold interest under each Real Property Lease under which it is a lessee, subject to the Enforceability Exceptions, free and clear of all Liens, except Permitted Liens. Each of the Real Property Leases is in full force and effect in accordance with their terms. Seller is not in material default under any Real Property Lease, and, to Seller’s Knowledge, no event has occurred and no circumstances exist which, if not remedied, and whether with or without notice or the passage of time or both, would result in such a default. Seller has not received or given any written notice of any default or event that with notice or lapse of time, or both, would constitute a default by Seller under any of the Real Property Leases, and, to Seller's Knowledge, no other party is in default thereof, and no party to any Real Property Lease has exercised any termination rights with respect thereto.
(e) Seller has all Permits issued by any applicable Governmental Authority required for the current use and operation of each Real Property Lease by Seller, and Seller has complied with all material conditions of the Permits applicable to them. To Seller’s Knowledge, no default or violation, or event that with the lapse of time or giving notice or both would become a default or violation, has occurred in the due observance of any Permit.
Section 3.19 . Environmental Matters . Except as disclosed on Schedule 3.19 :
(a) Seller is and has been since January 1, 2016 in compliance in all material respects with all Environmental Requirements. Neither the Seller nor any Selling Party has received any written notice, report or information since January 1, 2016 regarding any actual or alleged violation of Environmental Requirements or any Liabilities or potential Liabilities relating to any property or facility now or previously owned, occupied or operated by Seller or relating to the Business arising under Environmental Requirements.
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(b) There is no Environmental Claim pending or, to Seller's Knowledge, threatened against Seller, nor, to Seller’s Knowledge, is there any Environmental Claim pending against any Person whose Liability for any Environmental Claim Seller has retained or assumed in writing.
(c) Neither Seller nor any of Seller's Affiliates have stored, treated, disposed of, arranged for or permitted the disposal of, transported, handled or released any Hazardous Substances in connection with the Business or owned, occupied or operated any facility or property used in the Business in a manner that has given or would reasonably be expected to give rise to material Liabilities (including any Liability for response costs, corrective action costs, personal injury, natural resource damages, property damage or attorneys' fees or any investigative, corrective or remedial obligations) pursuant to CERCLA or any other Environmental Requirements.
(d) (i) There are no Liens arising under any Environmental Requirement on any Real Property arising as a result of any actions taken or omitted to be taken by Seller or, any of its Affiliates, and (ii) no actions have been taken by any Governmental Authority with respect to the Real Property to impose a Lien arising under Environmental Requirements with respect to such Real Property as a result of any such actions.
(e) No property or facility now or previously owned or operated by Seller is currently listed on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System, both promulgated under CERCLA, or on any analogous state list.
(f) To Seller’s Knowledge, no off-site location at which Seller has disposed or arranged for the disposal of any waste is listed on the National Priorities List or on any analogous state list.
(g) Seller has not either expressly or by operation of Legal Requirement assumed or undertaken any Liability or corrective, investigatory or remedial obligation of any other Person relating to any Environmental Requirements.
(h) Schedule 3.19(h) contains a list of all Environmental Permits currently in effect and all material written reports, correspondence, and other documentation prepared within the past five (5) years in Seller's and its Affiliates' possession regarding Hazardous Substances, Environmental Permits, and Environmental Requirements with respect to the Business (collectively, " Environmental Documentation ") and Seller and its Affiliates have provided Purchaser with copies of all such Environmental Documentation prior to the date hereof.
Section 3.20 . Insurance .
(a) Schedule 3.20(a) sets forth, with respect to each insurance policy under which Seller is the principal beneficiary of coverage, (i) the names of the insurer, the principal insured and each named insured, (ii) the policy number, and (iii) the period and type of coverage.
(b) With respect to each insurance policy required to be set forth on Schedule 3.20(a) : (i) the policy is in full force and effect in accordance with its terms; (ii) Seller is not in material breach or default (including any such breach or default with respect to the payment of premiums or the giving of notice), and, to Seller’s Knowledge, no event has occurred which, with notice or the lapse of time, would reasonably be expected to constitute such a material breach or default, or permit termination or modification, under the policy; and (iii) to Seller's Knowledge, no insurer on the policy has been declared insolvent or placed in receivership, conservatorship or liquidation.
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(c) Since January 1, 2017, Seller has not (i) been denied any material insurance or indemnity bond coverage which it has requested, (ii) made any material reduction in the scope or amount of its insurance coverage, or (iii) received written notice from any of its insurance carriers that any insurance premiums will be subject to increase in an amount materially disproportionate to the amount of the increases with respect thereto (or with respect to similar insurance) in prior years or that any insurance coverage listed on Schedule 3.20(a) will not be available in the future substantially on the same terms as are now in effect.
Section 3.21 . Transactions with Related Parties .
(a) Except as otherwise disclosed on Schedule 3.21(a) (provided that with respect to immediate family members described in the definition of "Related Party", to Seller’s Knowledge), (i) none of the customers, vendors, distributors or sales representatives of Seller is a Related Party; (ii) none of the Purchased Assets is owned or used by or leased to or from any Related Party; (iii) no Related Party owes any amount to Seller nor does Seller owe any amount to, nor has Seller committed to make any loan or extend or guarantee credit to or for the benefit of, any Related Party; (iv) no Related Party has any claim or cause of action against Seller; (v) no Related Party owns any direct or indirect interest of any kind, controls or is a director, officer, employee or partner of, or consultants to, or lender to or borrower from or has the right to participate in the profits of, any Person which is a competitor, vendor, customer, landlord, tenant, creditor or debtor of Seller; (vi) no Related Party is a party to any Assumed Contract with Seller; and (vii) no Related Party provides any administrative, legal, accounting or other services to Seller except in the ordinary course of business on arm's length terms.
(b) Except as set forth on Schedule 3.21(b) , any Assumed Contracts required to be disclosed on Schedule 3.21(a) are on arms-length terms.
Section 3.22 . Customers and Vendors . Schedule 3.22 sets forth the names of the five (5) vendors and ten (10) customers to whom Seller paid or from whom Seller has received the greatest sum of money in respect of services, products or materials provided to or from Seller in respect of the Business during the twelve (12) month period ending December 31, 2018. Except as set forth on Schedule 3.22 , in the past twelve (12) months, no such vendor or customer set forth on Schedule 3.22 has notified Seller in writing that it is canceling or otherwise terminating, or that it intends to cancel or otherwise terminate, its relationship with Seller.
Section 3.23 . No Brokers or Finders . No Selling Party nor any of their respective Affiliates have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with the transactions contemplated by this Agreement.
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Section 3.24 . No Additional Representations . EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE III (AS MODIFIED BY THE DISCLOSURE SCHEDULES), THE SELLING PARTIES EXPRESSLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO THE BUSINESS OR THE CONDITION, VALUE, QUALITY, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO ANY OF THE PURCHASED ASSETS, OR REGARDING ANY PROJECTION OR FORECAST REGARDING FUTURE RESULTS OR ACTIVITIES OR THE PROBABLE SUCCESS OR PROFITABILITY OF THE BUSINESS OR THE PURCHASED ASSETS.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser and Parent, on a joint and several basis, hereby represent and warrant to the Selling Parties as follows:
Section 4.1 . Due Organization . Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Indiana and has all requisite company power and authority to own, lease and operate its properties and to carry on its business as now conducted and as currently proposed to be conducted. Purchaser is duly qualified or authorized to do business as a foreign limited liability company and is in good standing under the laws of each jurisdiction in which it owns or leases real property and each other jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization, except where the failure to qualify would not have a Material Adverse Effect.
Section 4.2 . Matters . There is no Matter pending or, to Parent’s or Purchaser's knowledge, being threatened against Parent or Purchaser that challenges or could reasonably be expected to adversely affect, prevent, delay or make illegal any of the transactions contemplated by this Agreement or the Transaction Documents.
Section 4.3 . Authority; Binding Nature of Agreement . Each of Purchaser and Parent has all necessary corporate or company power and authority to execute and deliver this Agreement and the Transaction Documents and to perform its respective obligations under this Agreement and the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby; and the execution, delivery and performance by Purchaser and Parent, as applicable, of this Agreement and the Transaction Documents have been duly authorized by all necessary corporate or company action on the part of Purchaser and Parent, as applicable, and their respective boards of directors. No vote of Purchaser's or Parent's shareholders or members is required to authorize the transactions contemplated by this Agreement. This Agreement has been, and each Transaction Document will be at or prior to Closing, duly and validly executed and delivered by Purchaser and Parent, as applicable, and this Agreement constitutes, and, upon execution and delivery thereof, each of the Transaction Documents to which Purchaser or Parent is a party will constitute, the valid and binding obligation of Purchaser or Parent, as applicable, enforceable against such party in accordance with its terms, subject to the Enforceability Exceptions.
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Section 4.4 . Non-Contravention; Consents . The execution and delivery by Purchaser and Parent of this Agreement and the Transaction Documents, the consummation of the transactions contemplated hereby and thereby, and compliance by Purchaser and Parent with the provisions hereof or thereof will not result in any violation or breach of, or conflict with or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or give rise to any obligation of Purchaser or Parent, as applicable, to make any payment under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Liens upon any of the properties or assets of Purchaser or Parent under any provision of: (a) the articles of incorporation, bylaws or other charter or organizational documents of Purchaser or Parent; (b) any Order applicable to Parent or Purchaser or by which any of their properties or assets is bound; or (c) any applicable Legal Requirement. Neither Purchaser nor Parent is required to obtain any Consent from any Person at or prior to the Closing in connection with the execution and delivery of this Agreement or the Transaction Documents or the sale of the Purchased Assets to Purchaser which Consent has not been obtained.
Section 4.5 . Capital Structure.
(a) The authorized capital stock of Parent consists of: (i) Nineteen Million (19,000,000) Parent Common Shares; and (ii) One Million (1,000,000) preferred shares (the " Parent Preferred Shares "). As of the date of this Agreement: (A) Ten Million Two Hundred Ninety Thousand Five Hundred Thirty-One (10,290,531) Parent Common Shares were issued and outstanding (not including shares held in treasury); (B) no Parent Common Shares were issued and held by Parent in its treasury; and (C) Thirty-Five (35) Parent Preferred Shares were issued and outstanding (not including shares held in treasury); and (d) no Parent Preferred Shares were issued and held by Parent in its treasury. All of the outstanding Parent Common Shares are, and, when issued to Seller in accordance with this Agreement, all Parent Common Shares to be issued as contemplated by this Agreement will be, duly authorized, validly issued, fully paid, and non-assessable, and not subject to any pre-emptive rights. No Subsidiary of Parent owns any Parent Common Shares.
(b) As of the date of this Agreement, Seventeen Thousand Five Hundred (17,500) Parent Common Shares were reserved for issuance pursuant to conversions of outstanding Parent Preferred Shares, Six Hundred Ninety-Nine Thousand Four Hundred (699,400) Parent Common Shares were reserved for issuance pursuant to outstanding Parent Stock Options and Three Hundred Sixty-Nine Thousand Five Hundred Sixty-Nine (369,569) Parent Common Shares were reserved for issuance pursuant to Parent Equity Awards not yet granted under the Parent Stock Plans. All Parent Common Shares subject to issuance upon conversion of outstanding Parent Preferred Shares or pursuant to Parent Equity Awards under the Parent Stock Plans, upon issuance in accordance with the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid, and non-assessable.
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(c) Other than the Parent Preferred Shares and the Parent Equity Awards, as of the date hereof, there are no outstanding (A) securities of Parent or any of its Subsidiaries convertible into or exchangeable for capital stock of Parent, (B) options, warrants, or other agreements or commitments to acquire from Parent or any of its Subsidiaries, or obligations of Parent or any of its Subsidiaries to issue, any shares of capital stock of (or securities convertible into or exchangeable for shares of capital stock of) Parent, or (C) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, "phantom" stock, or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock of Parent, in each case that have been issued by Parent or its Subsidiaries (the items in clauses (A), (B), and (C), together with the capital stock of Parent, being referred to collectively as " Parent Securities "). All outstanding Parent Common Shares, all Parent Preferred Shares, and all outstanding Parent Equity Awards have been issued or granted, as applicable, in compliance in all material respects with all applicable securities laws.
(d) There are no outstanding Contracts requiring Parent or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any Parent Securities. Neither Parent nor any of its Subsidiaries is a party to any voting agreement with respect to any Parent Securities.
Section 4.6 . SEC Filings . The consolidated financial statements (including all related notes and schedules) of Parent included in (a) Parent's annual report on Form 10-K filed December 21, 2018, for the fiscal year ended September 30, 2018 (including the notes thereto), and (b) Parent's quarterly report on Form 10-Q for the period ended December 31, 2018 fairly present in all material respects the consolidated financial position of Parent and its consolidated subsidiaries as at the respective dates thereof and their consolidated results of operations and consolidated cash flows for the respective periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments, to the absence of notes and to any other adjustments described therein, including any notes thereto) in conformity with GAAP (except, in the case of the unaudited statements, as permitted by Form 10-Q or other rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto). Parent is, and has been for a period of at least ninety (90) days immediately prior to the Closing Date, subject to the reporting requirements of section 13 or 15(d) of the Exchange Act and has: (i) filed all required reports under section 13 or 15(d) of the Exchange Act, as applicable, during the past twelve (12) months, other than Form 8-K reports; and (ii) submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T, during the past twelve (12) months.
Section 4.7 . No Brokers or Finders . Neither Purchaser nor Parent have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with the transactions contemplated by this Agreement.
Section 4.8 . No Other Representations . Purchaser and Parent have relied solely upon the representations and warranties of the Selling Parties set forth in Article III and acknowledge that such representations and warranties are the only representations and warranties made by the Selling Parties whatsoever regarding the subject matter of this Agreement.
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ARTICLE
V
COVENANTS OF THE PARTIES
Section 5.1 . Mutual Cooperation . Subsequent to Closing, Purchaser and Seller, at the reasonable request of the other, shall each execute, deliver and acknowledge all such further instruments and documents and do and perform all such other acts and deeds as may be reasonably required to consummate the transactions contemplated by the Transaction Documents. Specifically, Seller shall render commercially reasonable assistance to Purchaser to ensure that the Assumed Contracts are assigned to Purchaser; and shall reasonably work with Purchaser to limit disruption to the Business during the transitionary period. To the extent permitted by Legal Requirements, Seller shall maintain the Permits set forth on Schedule 5.1 on behalf of Purchaser after the Closing until such time as Purchaser obtains such Permits in its own name, and each of Seller and Purchaser shall execute any agreements with the other as may be reasonably necessary or advisable in connection therewith. Purchaser shall use commercially reasonable efforts to obtain any such Permits in its own name as promptly as practicable after the Closing.
Section 5.2 . Preservation of Records . To the extent not transferred to Purchaser, Seller agrees to preserve and keep records held by it or its Affiliates relating to the Business for a period of three (3) years from the Closing Date and shall make such records and personnel available to Purchaser as may be reasonably required by Purchaser in connection with, among other things, any insurance claims by, Matters against or governmental investigations of Seller or Purchaser or any of their Affiliates or in order to enable Seller or Purchaser to comply with their respective obligations under this Agreement and the Transaction Documents (provided that such records and personnel shall not be required to be made available to Purchaser in connection with any dispute between any Selling Party and Purchaser and/or Parent, respectively). To the extent transferred to Purchaser, Purchaser agrees to preserve and keep records held by it or its Affiliates relating to the Business for a period of three (3) years from the Closing Date and shall make such records reasonably available to Seller as may be reasonably required in connection with, among other things, winding up of Seller's operations, preparing the financial statements of Seller, filing of a Tax Return by any Selling Party, any insurance claims by, Matters against or governmental investigations of a Selling Party, or in order to enable Selling Parties to comply with their respective obligations under this Agreement and the Transaction Documents (provided that such records and personnel shall not be required to be made available to Seller in connection with any dispute between any Selling Party and Purchaser and/or Parent, respectively); provided, that Purchaser shall in any event store and retain all record and sample archives (including stored and/or retained materials and samples from previous studies) included in the Purchased Assets in accordance with any applicable archiving requirements imposed by Contract or Legal Requirement. After the expiration of such three (3) year period, neither Seller nor Purchaser will destroy any of such books or records of the Business without giving the other party written notice thereof and the opportunity, at the other party's sole expense, to take possession thereof within thirty (30) days following receipt of such notice.
Section 5.3 . Payments . Following Closing, Seller shall transfer by wire to bank accounts designated in writing by Purchaser any and all cash, checks, wire transfers and other forms of monetary receipts that may be received by Seller representing payments on any Purchased Receivable, received by Seller or credited to Seller pursuant to any Assumed Contract, or that relate to a Purchased Asset (" Receipts ") within three (3) Business Days following receipt thereof along with associated details, including the name of the customer or other payor, the document number(s) (if any) associated with the Receipt and the amount of the Receipt. Seller will transmit to Purchaser such information via e-mail in Microsoft Excel files. Seller agrees to segregate all Receipts and to hold the same in trust for the benefit of Purchaser until they are transferred as provided herein.
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Section 5.4 . Employment Matters.
(a) Seller shall provide Purchaser with a current list of employees who work in the Business prior to the Closing Date. Purchaser shall offer employment, subject to Purchaser’s customary procedures (including those relating to background checks and protection of Purchaser’s business), to the individuals listed on Schedule 3.8 (provided, that for the avoidance of doubt, employment details with respect to certain individuals are set forth in the employee roster in Schedule 3.8 ). Such individuals who accept Purchaser's offer of employment and begin work for Purchaser at Closing are referred to as the " Hired Employees ". Seller shall terminate the employment of the Hired Employees as of the Closing Date or at such later date as an employee of the Business agrees with Purchaser to become a Hired Employee. Notwithstanding the foregoing, nothing in this Agreement imposes any obligation on Purchaser or its Affiliates to employ or enter into any other like relationship with any of Seller’s Personnel or Affiliates.
(b) Purchaser agrees to give each Hired Employee full service credit for such Hired Employee's employment with Seller prior to the Closing Date for purposes of calculating eligibility to participate and vesting credit (but not for accrual of benefits, incentive or equity compensation or for plans established after the Closing Date unless otherwise granted to similarly situated employees of the Purchaser) under each applicable Employee Plan of Purchaser or one of its Affiliates or as required by applicable statutory law, as if such service had been performed with Purchaser or one of its Affiliates; provided , however , that such service credit shall not be recognized to the extent that it would result in a duplication of benefits for the same period of time. Nothing in this Section 5.4(b) is intended to prevent Purchaser from amending or terminating any of Purchaser's Employee Plans. Purchaser shall give credit to each Hired Employee hired by Purchaser for any accrued but unused paid time off (PTO) to the extent that Seller does not pay such employee the same out at Closing and provided the accrued costs and expenses are accrued therefor as a current liability within the Net Working Capital.
(c) Seller shall use commercially reasonable efforts to cooperate with Purchaser in connection with Purchaser's good faith efforts to hire the Seller’s employees, including allowing Representatives of Purchaser and its Affiliates reasonable access during normal business hours, upon reasonable advance notice, to meet with and distribute to such employee such forms and other documents relating to his or her proposed employment with Purchaser, provided such access does not unreasonably interfere with Seller's conduct of the Business.
(d) Subject to the consummation of the sale of Purchased Assets pursuant to this Agreement, within five (5) days of the Closing Date, the Member shall adopt resolutions to terminate the participation of the Hired Employees in its 401(k) Employee Plan (" 401(k) Plan ") effective as of the Closing Date. Further, the Member shall take action to cause the Hired Employees' account balances, if any, under such 401(k) Plan to become fully vested as of the Closing Date. The Member agrees to permit each Hired Employee to effect a "direct rollover" (within the meaning of Section 401(a)(31) of the Code) of his or her account balances under the 401(k) Plan if such rollover is elected in accordance with applicable Legal Requirement by such Hired Employee. Purchaser, to the extent permitted under the terms and conditions of Purchaser's 401(k) plan, agrees to cause Purchaser’s 401(k) plan to accept a "direct rollover" to Purchaser’s 401(k) plan of such Hired Employee’s account balances (including promissory notes evidencing all outstanding loans) under the 401(k) Plan if such rollover is elected in accordance with applicable Legal Requirement by such Hired Employee and provided that such loans are amortized timely and are not in default.
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(e) Notwithstanding the foregoing, nothing contained herein shall (i) be treated as an amendment to any particular Employee Plan of Purchaser or Seller, (ii) obligate Purchaser or any of its Affiliates to maintain any particular Employee Plan or arrangement, (iii) prevent Purchaser or any of its Affiliates from amending or terminating any Employee Plan or arrangement, or (iv) give any third party the right to enforce any of the provisions of this Agreement.
(f) Purchaser shall use commercially reasonable efforts to (A) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Hired Employees and their dependents under the Purchaser’s and its affiliates health and welfare plans in which they may be eligible to participate (each a " Purchaser Welfare Plan ") to the extent waived or otherwise satisfied under the applicable corresponding Employee Plan immediately prior to the Closing Date and (B) provide each Hired Employee and his or her eligible dependents with credit under the Purchaser Welfare Plans for any co-payments and deductibles paid under corresponding Employee Plans prior to the Closing Date in the calendar year in which the Closing Date occurs (or, if later, in the calendar year in which Hired Employees and their dependents commence participation in the applicable Purchaser Welfare Plan) for purposes of satisfying any applicable deductible or out of-pocket requirements under any Purchaser Welfare Plans in which the Hired Employees are eligible to participate after the Closing Date.
(g) Seller shall be responsible for all claims for workers’ compensation benefits which are incurred prior to the Closing Date by Hired Employees that are payable under the terms and conditions of Seller’s workers’ compensation programs. Purchaser’s workers’ compensation program shall be responsible for all claims for benefits which are incurred from and after the Closing Date by Hired Employees that are payable under the terms and conditions of Purchaser’s workers’ compensation program, including for all claims occurring from and after the Closing Date with respect to Hired Employees who became eligible for workers compensation benefits with respect to prior claims that occurred prior to the Closing Date. For purposes of this Section 5.4(g) , a claim for workers compensation benefits shall be deemed to be incurred when the event giving rise to the claim occurs (the " Workers’ Compensation Event "). If the Workers’ Compensation Event occurs over a period both preceding and following the Closing, the claim shall be the joint responsibility and liability of Seller and Purchaser and shall be equitably apportioned between Seller, on the one hand, and Purchaser, on the other hand, based upon the relevant periods of time that the Workers’ Compensation Event transpired preceding and following the Closing.
(h) [Reserved]
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(i) Seller agrees to provide continuing health benefit coverage as described in Sections 601 through 608 of ERISA and Code Section 4980B (hereinafter referred to as "COBRA Coverage") to all persons who are "M&A qualified beneficiaries" (as described in IRS Regulation Section 54.4980B-9, Question and Answer 4) with respect to the transactions contemplated by this Agreement (hereinafter referred to as " COBRA Beneficiaries "). Specifically, Seller agrees that all obligations to provide COBRA Coverage to COBRA Beneficiaries are being allocated to Seller, as permitted by Question and Answer 7 of IRS Regulation Section 54.4980B-9. If Seller ceases to maintain a group health plan and Seller's obligation to provide COBRA Coverage to COBRA Beneficiaries shifts to Purchaser as a result of IRS Regulation Section 54.4980B-9, Question and Answer 8(c), then, notwithstanding any other provision of this Agreement to the contrary, Seller shall reimburse Purchaser for any expenses incurred by Purchaser (including, but not limited to, claims incurred under the plan, administrative fees, reinsurance premiums, etc.) in excess of the premiums collected by Purchaser from COBRA Beneficiaries and any actual reinsurance recoveries in providing COBRA Coverage to such COBRA Beneficiaries. Purchaser shall invoice Seller weekly with respect to such expenses and Seller shall be obligated to make full payment of each such invoice within five Business Days of the date of such invoice and, if Seller should fail to timely pay, Seller shall also be obligated to provide interest with respect to the unpaid amounts at the rate of 10% per annum.
(j) Parent agrees to issue options to purchase an aggregate of 100,000 Parent Common Shares to the Hired Employees. Options will be issued on the Closing Date and subject to the terms of Parent's 2018 Equity Incentive Plan, and will vest in three installments of 40%, 30%, and 30% on the first, second, and third anniversaries of the Closing Date, respectively. Such options shall be allocated to the Hired Employees by Parent based on seniority and other such criteria as Parent deems appropriate.
(k) The parties hereto acknowledge and agree that all provisions contained in this Section 5.4 are included for the sole benefit of the Parties, and that nothing in this Agreement, whether express or implied, shall create any third-party beneficiary or other rights (i) in any other Person, including any employee or former employee of Seller or the Business (including the Hired Employees), any participant in any employee benefit plan maintained by Purchaser or any of its Affiliates, or any dependent or beneficiary thereof, or (ii) to continued employment with Purchaser or any of its Affiliates.
Section 5.5 . Contract Assignment and Consents . Notwithstanding anything to the contrary contained in this Agreement, if the assignment or attempted assignment to Purchaser of any Assumed Contract is: (a) prohibited by any applicable law; or (b) would require any Consent of a Third Party (a " Required Consent "), that Required Consent shall not have been obtained prior to the Closing Date (each, a " Non-Assignable Contract "), then the Closing shall not constitute the assignment of such Non-Assignable Contract, and this Agreement shall not constitute an assignment of such Non-Assignable Contract, unless and until such Required Consent is obtained. Following the Closing, (x) Seller, to the maximum extent permitted by Legal Requirement, will use commercially reasonable efforts to act as Purchaser's agent in order to obtain for Purchaser the benefits under each Non-Assignable Contract and will reasonably cooperate, to the maximum extent permitted by Legal Requirement, with Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser; and (y) Purchaser will, to the maximum extent permitted by Legal Requirement, perform, on Seller's behalf, Seller's obligations under the Non-Assignable Contract in accordance with the terms and conditions thereof. Once a Required Consent for the assignment of any Non-Assignable Contract is obtained, Seller shall promptly assign and transfer such Non-Assignable Contract to Purchaser at no additional cost to Purchaser. Purchaser shall not assume any Liabilities under a Non-Assignable Contract until it has been assigned to Purchaser; provided , however , that Purchaser shall be liable to Seller for performing its obligations under the arrangements described in this Section 5.5 .
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Section 5.6 . Restrictive Covenants.
(a) To induce Purchaser to enter into this Agreement, each Restricted Party covenants and agrees that during the period commencing on the Closing Date and ending on the fifth anniversary of the Closing Date (in each case, the " Restricted Period "), such Restricted Party will not, and shall cause each of its Affiliates not to, directly or indirectly, own, invest in, lend to, engage in, manage, consult to, operate, control, maintain any interest in (proprietary, financial or otherwise), otherwise affiliate with, or participate in the ownership, management, operation or control of, any business, whether corporate, proprietorship or partnership form or otherwise, engaged in any Competitive Enterprise in the Restricted Area; provided that each Restricted Party may acquire equity interests in an entity engaged in a Competitive Enterprise and whose securities are publicly traded so long as the Restricted Party does not become the holder of more than 5% of the outstanding equity securities of the entity. " Competitive Enterprise " means business the same as or substantially similar to, and that materially competes with, the Business.
(b) During the Restricted Period, each Restricted Party will not, and shall cause each of its officers, directors and managers (in their capacities as such) not to, directly or indirectly on behalf of any other Person, solicit, induce, or encourage any Hired Employee to leave his or her employment with Purchaser or Parent, as applicable, or hire, employ or otherwise engage any such individual. Nothing contained in this Section 5.6(b) shall prohibit (i) generalized solicitations of potential employees by use of advertisements in the media that are not targeted at the employees of Purchaser or Parent (including, without limitation, any recruitment efforts conducted by any recruitment agency so long as such agency has not been instructed to contact Purchaser’s or Parent’s employees), or (ii) a Restricted Party from soliciting or hiring a (x) Hired Employee whose employment with Parent or Purchaser is terminated by Parent or Purchaser or (y) after six (6) months from the date of termination of employment, a Hired Employee whose employment with Parent or Purchaser is terminated by such Hired Employee; provided that such termination was not in response to or induced or influenced by solicitation or other activity prohibited by the first sentence of this Section 5.6(b) .
(c) During the Restricted Period, each Restricted Party shall, and shall cause each of its officers, directors and managers (in their capacities as such) to, reasonably cooperate with Purchaser and use commercially reasonable efforts to continue and maintain for the benefit of Purchaser those business relationships of Seller existing prior to the Closing, including relationships with lessors, Personnel, regulatory authorities, licensors, customers, suppliers and others, and Seller shall satisfy all Excluded Liabilities in a manner that is not detrimental to any of such relationships (subject to Seller’s right to dispute any such Excluded Liabilities in good faith). During the Restricted Period, the Restricted Parties shall refer to Purchaser all inquiries relating to the Business. During the Restricted Period each Restricted Party shall not, and shall cause each of its officers, directors and managers (in their capacities as such) not to, (i) directly or indirectly solicit or provide services competitive to those of the Business to any current client of the Business or any person or entity who has been a client of Seller with respect to the Business at any time during the two (2) years immediately before Closing, or (ii) directly or indirectly divert or influence or attempt to divert or influence any client or customer of the Business from Purchaser to a competitor of Purchaser with respect to the Business.
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(d) During the Restricted Period, the Restricted Parties shall, and shall cause each of its officers, directors and managers (in their capacities as such), to (i) not directly or indirectly, disclose, reveal, divulge or communicate to any Person other than authorized officers, directors and employees of Purchaser or Parent or use or otherwise exploit for its own benefit or for the benefit of anyone other than Purchaser or Parent, any Confidential Information used in the operations of or associated with the Business and (ii) keep confidential any Confidential Information used in the operations of or associated with the Business, except for any such information that (A) is available to the public on the Closing Date, (B) thereafter becomes available to the public other than as a result of a breach of this Section 5.6(d) by the Restricted Parties or their officers, directors or managers (in their capacities as such), or (C) is or becomes available to the Restricted Parties or their officers, directors or managers (in their capacities as such) on a non-confidential basis from a source that is not known to be prohibited from disclosing such information by legal, contractual or fiduciary obligation to any other Person; provided , that nothing contained in this Section 5.6(d) shall prohibit the Restricted Parties or their officers, directors or managers (in their capacities as such) from disclosing any information should any such Person be required to disclose any such information in response to an Order or as otherwise required by Legal Requirements; provided , further that in any such case, to the extent permitted by Legal Requirements, such Person shall inform Purchaser in writing of such request or obligation promptly after such Person is informed of it and, if possible, before any information is disclosed, so that a protective order or other appropriate remedy may be obtained by Purchaser (at Purchaser’s sole cost and expense). If any Restricted Party or any of its officers, directors or managers (in their capacities as such) is obligated to make such disclosure, such Person shall only make such disclosure to the extent to which it is so obligated, but not further or otherwise.
(e) During the one (1) year period following the Closing Date, each of Purchaser and Parent (the " BASi Entities ") will not, and they shall cause each of their respective officers, directors and managers (in their capacities as such) not to, directly or indirectly on behalf of any other Person, solicit, induce, or encourage (x) any employee of the Member or its subsidiaries (the " Smithers Entities "), including, without limitation, employees of Seller who are not Hired Employees, or (y) Carol Romer (a current 1099 contractor of Seller), to leave his or her employment or engagement with the Smithers Entities, or hire, employ or otherwise engage any such individual. Nothing contained in this Section 5.6(e) shall prohibit (i) generalized solicitations of potential employees by use of advertisements in the media that are not targeted at the employees of the Smithers Entities (including, without limitation, any recruitment efforts conducted by any recruitment agency so long as such agency has not been instructed to contact the Smithers Entities’ employees), or (ii) the BASi Entities from soliciting or hiring (x) an employee whose employment with the Smithers Entities is terminated by the Smithers Entities or (y) after six (6) months from the date of termination of employment, an employee of the Smithers Entities whose employment with the Smithers Entities is terminated by such employee; provided that such termination was not in response to or induced or influenced by solicitation or other activity prohibited by the first sentence of this Section 5.6(e) .
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(f) Notwithstanding anything to the contrary, in the case of breach or threatened breach of the covenants in this Section 5.6 , (i) the party seeking enforcement may seek specific performance to cause the Restricted Parties or the BASi Entities, as applicable, to cease such breach and refrain from any such future breaches and (ii) the claiming of damages for any losses incurred by the Restricted Parties or the BASi Entities, as applicable, due to actions prohibited by the aforesaid covenants shall remain unaffected.
(g) The parties hereto acknowledge that the covenants set forth in this Section 5.6 are an essential element to this Agreement and that, but for these covenants, the parties hereto would not have entered into this Agreement. The parties hereto specifically acknowledge and agree that each party has received adequate consideration in exchange for entering into these covenants, the foregoing restrictions are reasonable and necessary to protect the legitimate interest of the BASi Entities or the Restricted Parties, as applicable, post-Closing, including, in the case of the BASi Entities, the goodwill that Purchaser shall be purchasing from Seller pursuant to the transactions contemplated by this Agreement and the Transaction Documents. The parties hereto acknowledge that this Section 5.6 constitutes an independent covenant and shall not be affected by performance or nonperformance of any other provisions of this Agreement or any other document contemplated by this Agreement.
(h) It is the intention of the parties hereto that if any of the restrictions or covenants contained in this Section 5.6 is held to cover a geographic area or to be for a length of time which is not permitted by Legal Requirements, or is in any way construed to be too broad or to any extent invalid, such restrictions or covenants shall be construed to be null, void, and of no effect, but to the extent such restrictions or covenants would be valid or enforceable under applicable Legal Requirements, a court of competent jurisdiction shall construe and interpret this Section 5.6 to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained in this Section 5.6 ) that would be valid and enforceable under law.
Section 5.7 . SEC Filings . From and after the date the Parent Common Shares first become saleable under Rule 144 until the one (1) year anniversary of such date, Parent shall use commercially reasonable efforts to: (a) make all filings necessary under the Exchange Act, as and when required by the Exchange Act, (b) take all other actions required by the Exchange Act, and (c) refrain from taking any action prohibited by the Exchange Act such that each Selling Party may, on or after the date that the Parent Common Shares first become saleable under Rule 144, sell such Parent Common Shares in reliance upon Rule 144.
Section 5.8 . Financial Statements . Seller shall, at its expense, (i) promptly following the execution of this agreement, if not before, commence preparation of financial statements of Seller meeting the requirements of Item 9.01(a) of the United States Securities and Exchange Commission (" SEC ") Form 8-K (" Form 8-K ") as are required to be filed by Parent with the SEC as a result of the Closing of the transactions contemplated under this Agreement (the " Seller SEC Financial Statements "), (ii) within sixty (60) days following the Closing Date, deliver to Purchaser the Seller SEC Financial Statements, (iii) within sixty (60) days following the Closing Date, cause an independent public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) to provide a manually signed report meeting the requirements of Section 2-02 of Regulation S-X and a manually signed consent of such auditor which is required to be included in the Form 8-K to be filed by Parent with the SEC with respect to the Seller SEC Financial Statements and the report thereon referred to in this proviso (iii), and (iv) reasonably cooperate with, and provide all information and documents reasonably requested by, Purchaser regarding Seller in order to assist Purchaser in the preparation of the pro forma financial information required by Item 9.01(b) of Form 8-K with respect to the transactions contemplated hereby, with such Seller SEC Financial Statements being in the form and content set forth in Regulation S-X and Form 8-K.
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Section 5.9 . Change of Name . After the Closing, the Selling Parties shall (i) within five Business Days after the Closing Date, amend Seller’s organizational documents and take all other actions necessary to change Seller’s name to one sufficiently dissimilar to Seller's present name, in Purchaser's sole judgment, to avoid confusion; (ii) not use the prior name or any of the names listed in Schedule 5.9 or any derivatives thereof; and (iii) take all actions reasonably requested by Purchaser to enable Purchaser to use the names or any derivatives thereof used by Seller prior to the Closing.
Section 5.10 . Uncollected Receivables . Following the Closing, Purchaser shall use commercially reasonable efforts (which shall not require greater efforts than Purchaser uses to collect its own receivables from its customers) to collect all Purchased Receivables from the applicable third parties. However, in the event any such Purchased Receivables become Uncollected Receivables, Purchaser shall assign any such Uncollected Receivables to Seller. Any amounts thereafter collected by Seller with respect to the Uncollected Receivables shall be retained by Seller and, notwithstanding the provisions of Section 5.3 , Seller shall have no obligation to forward such payments to Purchaser. Purchaser shall transfer by wire to bank accounts designated in writing by Seller any and all cash, checks, wire transfers and other forms of monetary receipts that may be received by Purchaser representing payments on any Uncollected Receivable received by Purchaser or credited to Purchaser pursuant to any Assumed Contract, or that relate to a Purchased Asset (" Purchaser Receipts ") within three (3) Business Days following receipt thereof along with associated details, including the name of the customer or other payor, the document number(s) (if any) associated with the Purchaser Receipt and the amount of the Purchaser Receipt. Purchaser will transmit to Seller such information via e-mail in Microsoft Excel files. Purchaser agrees to segregate all Purchaser Receipts and to hold the same in trust for the benefit of Seller until they are transferred as provided herein.
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Section 5.11 . Taxes .
(a) All real property Taxes, personal property Taxes and similar ad valorem obligations levied with respect to the Purchased Assets for a taxable period that includes (but does not end on) the day before the Closing Date (each such period, a “ Straddle Period ”) shall be apportioned between Seller and Purchaser based on the number of days in such Straddle Period that are in the Pre-Closing Tax Period, and the number of days in such Straddle Period that are in the Post-Closing Tax Period. Seller shall be liable for the portion of such Taxes attributable to the Pre-Closing Tax Period, and Purchaser shall be liable for the portion of such Taxes attributable to the Post-Closing Tax Period. The party responsible for paying such Taxes (the “ Filing Party ”) shall file any Tax Returns with respect to such Taxes in the time and manner required by Legal Requirements. Such Tax Returns shall be true, complete and correct and prepared in accordance with applicable Legal Requirements and past practices (except as required by applicable Legal Requirements). The Filing Party shall provide the other party with a copy of each such Tax Return at least 30 days prior to the due date, and shall revise such Tax Return in accordance with the other party’s reasonable comments. Any disputes with respect to such Tax Returns shall be resolved in accordance with the procedures set forth in Section 2.8(e) . If bills for such Taxes have not been issued as of the Closing Date, and, if the amount of such Taxes for the period including the Closing Date is not then known, the apportionment of such Taxes shall be made at Closing on the basis of the prior period’s Taxes. After Closing, upon receipt of bills for the period including the Closing Date, adjustments to the apportionment shall be made by the parties, so that if either party paid more than its proper share at the Closing, the other party shall promptly reimburse such party for the excess amount paid by them. If either party receives a refund of Taxes that the other party has paid pursuant to this Section 5.11(a) , it shall reimburse the other party its proportionate share of such refund, less any Taxes or other costs imposed with respect to the receipt of such refund.
(b) Purchaser and the Selling Parties shall utilize the alternate procedure set forth in Revenue Procedure 2004-53 with respect to wage withholding for Hired Employees.
ARTICLE
VI
INDEMNIFICATION
Section 6.1 . Indemnification by Selling Parties . Subject to the limitations set forth in this Article VI , from and after the Closing, the Selling Parties, jointly and severally (except with respect to Section 3.12(b)–(d) , in which case the Selling Parties shall indemnify the Purchaser Indemnified Parties on a several, not joint and several, basis), shall indemnify, defend and hold harmless Purchaser, its Affiliates and their respective successors, assignees, officers, directors, principals, attorneys, agents, employees or other Representatives (collectively, the " Purchaser Indemnified Parties " and each individually a " Purchaser Indemnified Party ") against any Damages that a Purchaser Indemnified Party incurs arising out of or as a result of:
(a) any breach, misrepresentation or inaccuracy of any of the representations and warranties of any Selling Party set forth in this Agreement or in any certificate furnished by any Selling Party to Purchaser or Parent pursuant to this Agreement;
(b) any breach or nonfulfillment by any Selling Party of its respective covenants or agreements set forth in this Agreement;
(c) any Excluded Liability;
(d) any Excluded Asset;
(e) subject to Section 2.5 , any and all Taxes of Seller or the Member for any Tax period prior to the Closing (including the portion of any tax period allocable to the pre-Closing period) and for any Taxes payable by Seller or the Member as a result of the transactions contemplated by this Agreement; and
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(f) any and all Matters, demands, assessments, audits or judgments arising out of any of the foregoing.
Section 6.2 . Indemnification by Purchaser . Subject to the limitations set forth in this Article VI , from and after the Closing, Purchaser and Parent, jointly and severally, shall indemnify the Selling Parties, their Affiliates and their respective successors, assignees, officers, directors, principals, attorneys, agents, employees or other Representatives (collectively, the " Seller Indemnified Parties " and each individually a " Seller Indemnified Party ") against any Damages that a Seller Indemnified Party incurs arising out of or as a result of:
(a) any breach, misrepresentation or inaccuracy of the representations and warranties of Purchaser or Parent set forth in this Agreement or in any certificate furnished by Purchaser or Parent to any Selling Party pursuant to this Agreement;
(b) any breach or nonfulfillment by Purchaser or Parent of the covenants or agreements of Purchaser or Parent set forth in this Agreement;
(c) any Assumed Liability;
(d) the operation of the Business after the Closing (including, without limitation, the maintenance of Permits by Seller on Purchaser’s behalf in accordance with the last two sentences of Section 5.1 ) to the extent such Damages do not arise out of or result from a breach, misrepresentation or inaccuracy of the representations and warranties of Seller or any Excluded Liability or Excluded Asset; and
(e) any and all Matters, demands, assessments, audits or judgments arising out of any of the foregoing.
Section 6.3 . Survival .
(a) Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (18) months from the Closing Date, and all Liability with respect to breaches of such representations and warranties shall thereupon be extinguished (except to the extent a Claim with respect thereto has been made prior to such time in which case such representations and warranties shall survive until such Claim is resolved). Notwithstanding the foregoing, the representations and warranties of Seller set forth in (a) Section 3.15 (Taxes), Section 3.9 (Employee Benefits) and Section 3.19 (Environmental Matters), shall survive, and all Liability with respect to breaches of such representations and warranties, shall continue in full force and effect until the date following ninety (90) days after all applicable statutes of limitations, including waivers and extensions, have expired with respect to the matters addressed therein and (b) the Fundamental Representations, and all Liability with respect to breaches of such representations and warranties, shall survive for a period of seven (7) years from the date hereof. Notwithstanding anything in this Article VI to the contrary, in the event that any breach or alleged breach of any representation or warranty by (i) the Seller results from Fraud of the Seller or the Member, or (ii) Purchaser or Parent results from Fraud of Purchaser or Parent, then, in each case, such representation or warranty shall survive the Closing and the consummation of the transactions contemplated hereby and shall continue in full force and effect without any time limitation with respect to such breach or alleged breach.
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(b) Other than with respect to the Fundamental Representations, the Indemnifying Party will not be required to indemnify the Indemnified Party under Section 6.1(a) with respect to any breach by any Selling Party of any of the representations and warranties of any Selling Party set forth in this Agreement, except to the extent that the cumulative amount of the Damages actually incurred by the Indemnified Party as a result of all such breaches actually exceeds Fifty Thousand Dollars ($50,000.00) (the " Threshold Amount "), after which time the amount of such Damages occurring hereunder in excess of the Threshold Amount will be indemnifiable, subject to the limitations set forth in clause (c) below.
(c) Other than with respect to the Fundamental Representations, the total amount of the payments that the Indemnifying Party can be required to make with respect to any breach by any Selling Party of any of the representations and warranties of any Selling Party set forth in this Agreement will be limited in the aggregate to a maximum of Three Hundred Thousand Dollars ($300,000) (the " Rep Cap "), and the Indemnifying Parties' cumulative Liability for such breaches of representation and warranty will in no event exceed such amount. In no event shall the Threshold Amount and Rep Cap apply to any claims by any Indemnified Party for indemnification pursuant to (i) Section 6.1(b) , Section 6.1(c) , Section 6.1(d) , Section 6.1(e), Section 6.1(f) (to the extent incurred in connection with a claim for indemnification under Section 6.1(b) through (e) ), Section 6.2(b) , Section 6.2(c) , Section 6.2(d) or Section 6.2(e) (to the extent incurred in connection with a claim for indemnification under any of Section 6.2(b) through (d) ), and (ii) Damages any Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by fraud or intentional misrepresentation. Except with respect to Fraud, the total amount of the payments that the Selling Parties, on the one hand, and Purchaser and Parent, on the other hand, can be required to make under this Agreement with respect to Section 6.1(a) or Section 6.1(b) or Section 6.1(f) (to the extent incurred in connection with a claim for indemnification under either Section 6.1(a) or Section 6.1(b)) , as applicable, shall be the Purchase Price (except to the extent limited by the Rep Cap as described above).
(d) The amount of any Damages that are subject to indemnification under this Article VI shall be calculated net of the amount of any insurance proceeds, indemnification payments, contribution payments or reimbursements actually received by the Indemnified Party or any Affiliate of the Indemnified Party in connection with such Damages (less the costs incurred by the Indemnified Party and its Affiliates in collecting such amounts, including any resulting increases in insurance premiums). In the event that an insurance recovery or other payment or reimbursement is received by the Indemnified Party or any Affiliate of the Indemnified Party with respect to any Damages for which the Indemnified Party has been indemnified hereunder, the Indemnified Party shall promptly pay to the Indemnifying Party, a sum equal to the lesser of (i) the actual amount of such insurance proceeds recoveries or other payments or reimbursements, as the case may be, or (ii) the actual amount of the indemnification payment previously paid with respect to such Damages. The Indemnified Party shall use commercially reasonable efforts to recover all amounts payable from an insurer or other third party under any applicable insurance policy or Contract in connection with the facts giving rise to the right of indemnification hereunder; provided, that no Indemnified Person shall be required to initiate or pursue litigation against third parties in connection with such efforts to recover.
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(e) For the purposes of determining the amount of any Damages (but not the inaccuracy in or breach of any of the representations or warranties set forth in this Agreement) related to the inaccuracy in or breach of, any of the representations or warranties as set forth in this Agreement, the representations and warranties set forth in this Agreement shall be considered without regard to any qualifications as to "material", "materiality" or "Material Adverse Effect" (or any correlative terms) set forth therein.
(f) No Selling Party shall have any liability pursuant to Section 6.1 with respect to Damages to the extent such Damages are reserved or accrued for in the Net Working Capital Statement or otherwise taken into account in the calculation of any adjustment to the Purchase Price pursuant to Article II .
(g) Notwithstanding the fact that the Indemnified Party may have the right to assert claims for indemnification under or in respect of more than one provision of this Agreement in respect of any fact, event, condition or circumstance, no Indemnified Party shall be entitled to recover the amount of any Damages suffered by such Indemnified Party more than once, regardless of whether such Damages may be as a result of a breach of more than one representation, warranty, obligation or covenant or otherwise. In addition, any liability for indemnification hereunder shall be determined without duplication of recovery by reason of the state of facts giving rise to such liability, or a breach of more than one representation, warranty, covenant or agreement, as applicable.
(h) Except with respect to specific performance for the breach of any Restricted Party of the restrictive covenants contained in Section 5.6 , and except in the case of Fraud, the right to indemnification under this Article VI , subject to all of the terms, conditions and limitations hereof, shall constitute the sole and exclusive right and remedy available to any party hereto for any actual or threatened breach of the representations, warranties, covenants and obligations set forth in this Agreement, and none of the parties hereto shall initiate or maintain any legal action at law or in equity against any other party hereto which is directly or indirectly related to any breach or threatened breach of the representations, warranties, covenants or obligations set forth in this Agreement. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and its Affiliates and each of their respective Representatives arising under or based upon any Legal Requirement, except pursuant to the indemnification provisions set forth in this Article VI .
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Section 6.4 . Indemnification Procedures.
(a) Third Party Claims . If a party entitled to be indemnified under this Article VI (an " Indemnified Party ") receives notice of the assertion or commencement of any action, suit, claim or other legal proceeding made or brought by a Third Party (a " Third Party Claim ") against such Indemnified Party with respect to which the Indemnified Party wishes to assert an indemnification claim against the party or parties subject to such indemnification obligation under this Article VI (the " Indemnifying Party "), the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof (" Claim Notice "), and in no event later than forty-five (45) days following receipt of notice of the Third Party Claim by the Indemnified Party. The failure to provide such a Claim Notice within such forty-five (45) day period shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure or is otherwise prejudiced. A Claim Notice shall describe the Third Party Claim in reasonable detail, and shall indicate the estimated amount, if reasonably practicable, of the Damages that have been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party's expense and by the Indemnifying Party's own counsel (as reasonably acceptable to the Indemnified Party), and the Indemnified Party shall use commercially reasonable efforts to cooperate in good faith in such defense. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 6.4(b) , it shall have the right to take such action as it deems necessary to defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right, at its own cost and expense, to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party's right to control the defense thereof. If the Indemnifying Party elects not to compromise or defend such Third Party Claim or fails to notify the Indemnified Party in writing of its election to defend as provided in this Agreement within forty five (45) days after receipt of notice of such Third Party Claim from the Indemnified Party, the Indemnified Party may, subject to Section 6.4(b) pay, compromise and defend such Third Party Claim and seek indemnification for any and all Damages based upon, arising from or relating to such Third Party Claim. Seller and Purchaser shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim.
(b) Settlement of Third Party Claims . Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into a settlement of any Third Party Claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed), except as provided in this Section 6.4(b) . If an offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party or others or providing any restrictions on the operation of such Person's business as conducted, and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 6.4(a) it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).
(c) Direct Claims . Any claim by an Indemnified Party on account of Damages which do not result from a Third Party Claim (a " Direct Claim ") shall be asserted by the Indemnified Party giving the Indemnifying Party written notice thereof within forty-five (45) days of discovery. The failure to give such written notice within such forty-five (45) day period shall not, however, relieve the Indemnifying Party of its indemnification obligations, except to the extent prejudiced thereby. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, and shall indicate the estimated amount, if reasonably practicable, of the Damages that have been or may be sustained by the Indemnified Party. The Indemnifying Party shall have forty five (45) days after its receipt of such notice to respond in writing to such Direct Claim. During such 45-day period, the Indemnified Party shall allow the Indemnifying Party and its Representatives a reasonable opportunity to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall use commercially reasonable efforts to assist the Indemnifying Party's investigation by giving such information and assistance (including access to the Indemnified Party's premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its Representatives may reasonably request. If the Indemnifying Party does not so respond within such 45-day period, the Indemnifying Party shall be deemed to have accepted such claim.
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Section 6.5 . Payments; Escrow .
(a) Within ten (10) Business Days after both (i) the resolution of any indemnification claim by any Purchaser Indemnified Party hereunder pursuant to which such Purchaser Indemnified Party is entitled to any payment from a Selling Party pursuant to Section 6.1 and (ii) the delivery by such Purchaser Indemnified Party of a written request for payment to such Selling Party, such payment shall be made by the applicable Selling Party. Subject to the terms of the Escrow Agreement, the Escrow Amount will be available to compensate the Purchaser Indemnified Parties for Damages for which such Purchaser Indemnified Parties are entitled to indemnification pursuant to Section 6.1 and in accordance with the Escrow Agreement.
(b) If a Purchaser Indemnified Party becomes entitled to a payment from a Selling Party pursuant to Section 2.8(g) or Section 6.1 (as finally determined in accordance with such provisions) at a time prior to the full settlement and termination of the Seller Promissory Note, Purchaser, in its sole discretion, may notify the Selling Parties in writing that Purchaser is reducing the remaining principal amount of the Seller Promissory Note or accrued interest thereon (the " Set-Off Rights ") by up to the amount of the payment to which the Purchaser Indemnified Party is entitled; provided, however, that nothing contained herein shall be construed to limit Purchaser's recovery from the Selling Parties for any payment to which the Purchaser Indemnified Party is entitled which is not offset entirely by the Purchaser’s exercise of such Set-Off Rights, nor shall the failure to exercise such Set-Off Rights constitute an election of remedies or limit Purchaser in any manner in the enforcement of any other remedies that may be available to it.
(c) Within ten (10) Business Days after both (i) the resolution of any indemnification claim by any Seller Indemnified Party hereunder pursuant to which such Seller Indemnified Party is entitled to any payment from Purchaser or Parent and (ii) the delivery by such Seller Indemnified Party of a written request for payment to Purchaser or Parent, as applicable, such payment shall be made by the Purchaser or Parent, as applicable.
(d) The Indemnifying Party shall reimburse the Indemnified Party for any and all reasonable costs or expenses of any nature or kind whatsoever (including, but not limited to, all reasonable attorneys' fees) incurred in seeking to collect any payments due under this Section 6.5 .
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Section 6.6 . Treatment of Payments . Any indemnification payments made by any party hereto pursuant to this Agreement and any payments made pursuant to Section 2.8 shall be treated by all other parties as an adjustment to the Purchase Price set forth in Section 2.3 .
ARTICLE
VII
MISCELLANEOUS
Section 7.1 . Governing Law. This Agreement will be construed in accordance with, and governed in all respects by, the laws of the State of Delaware (without giving effect to principles of conflicts of law).
Section 7.2 . Venue and Jurisdiction .
(a) Except as described in Section 2.8(e) , if any Matter or other legal action relating to this Agreement is brought or otherwise initiated, the exclusive venue therefor will be in a state or federal court located in the State of Delaware, which will be deemed to be a convenient forum. Purchaser and the Selling Parties hereby expressly and irrevocably consent and submit to the jurisdiction of the state court or federal court located in the State of Delaware.
(a) To the extent permitted by applicable Legal Requirements, each of the parties hereto hereby irrevocably waives any and all right to a trial by jury in any Matter arising out of or related to this Agreement or the Transaction Documents or the transactions contemplated hereby or thereby.
Section 7.3 . Notices . Any notice or other communication required or permitted to be delivered to a party under this Agreement must be in writing and will be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service, by facsimile or via electronic mail) to the address, facsimile telephone number, or the electronic mail address set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other party):
if to Purchaser or Parent:
Bioanalytical Systems, Inc.
2701 Kent Avenue
West Lafayette, IN 47906
Attn: Jill C. Blumhoff
Email: jblumhoff@basinc.com
with a copy (which shall not constitute notice) to:
Ice Miller LLP
One American Square
Suite 2900
Indianapolis, IN 46282
Attn: Stephen J. Hackman
Email: Stephen.Hackman@icemiller.com
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If to Seller or Member:
The Smithers Group, Inc.
425 West Market Street
Akron, OH 44303
Attn: J. Michael Hochschwender
Email: mhochschwender@smithers.com
with a copy (which shall not constitute notice) of any notice to Seller or Member to:
Calfee, Halter & Griswold LLP
1405 East Sixth Street
Cleveland, Ohio 44114
Attn: Stephen P. Kresnye
Email: skresnye@calfee.com
Section 7.4 . Public Announcements . The initial press release with respect to the execution of this Agreement shall be a joint press release acceptable to Purchaser and Seller, except as Purchaser reasonably believes, after receiving the advice of outside counsel and after informing all other parties to this Agreement, another form of press release may be required by Legal Requirement or by the rules of a national securities exchange or trading market. Thereafter, so long as this Agreement is in effect, neither Seller nor Purchaser shall issue or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby without the prior consultation of the other party, except as Purchaser reasonably believes, after receiving the advice of outside counsel and after informing all other parties to this Agreement, another form of press release may be required by Legal Requirement or by the rules of a national securities exchange or trading market.
Section 7.5 . Assignment . No party hereto may assign any of its rights or delegate any of its obligations under this Agreement (whether voluntarily, involuntarily, by way of merger or otherwise) to any other Person without the prior written consent of the other party; provided, that (a) Purchaser shall have the right to assign any of its rights or obligations under this Agreement to one or more of its Affiliates, and Purchaser and each such Affiliate shall have the right to assign any or all of its rights or obligations under this Agreement to any purchaser of a material portion of its assets or the line of business that includes the Purchased Assets or the Business as conducted by Purchaser or to a successor as part of Purchaser's reorganization, sale or merger to or with such successor, and (b) Purchaser may assign its rights hereunder for collateral security purposes to any lender or lenders, or agent therefor, providing financing to Purchaser or any of its Affiliates in connection with the transactions contemplated hereby, or to any assignee or assignees of any such lender, lenders or agent; provided further, that in any event no such assignment shall relieve Purchaser or Parent of their respective obligations hereunder.
Section 7.6 . Parties in Interest . Nothing in this Agreement is intended to provide any rights or remedies to any Person other than the parties hereto.
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Section 7.7 . Bulk Sales Laws . The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Purchaser. As between Purchaser and Seller, Purchaser shall have no obligation to give bulk transfer notices to creditors, claimants or other Persons.
Section 7.8 . Severability . In the event that any provision of this Agreement, or the application of such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, will not be affected and will continue to be valid and enforceable to the fullest extent permitted by law.
Section 7.9 . Specific Performance . The parties hereto agree that irreparable damage may occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties hereto shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any state or federal court located in the State of Delaware, in addition to any other remedy to which they are entitled at law or in equity.
Section 7.10 . Entire Agreement . This Agreement and the Transaction Documents set forth the entire understanding of the parties hereto and supersede all other agreements and understandings among the parties relating to the subject matter hereof and thereof.
Section 7.11 . Waiver . No failure on the part of a party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of such party in exercising any power, right, privilege or remedy under this Agreement, will operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy will preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Any waiver of any provision of this Agreement and any consent given hereunder must be in writing signed by the party sought to be bound. The waiver by any party of breach or violation of any provision of this Agreement will not operate as, or be construed to constitute, a waiver of any subsequent breach or violation of the same or any other provision hereof.
Section 7.12 . Amendments . This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of each party hereto.
Section 7.13 . Counterparts . This Agreement may be executed in several counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement.
Section 7.14 . Interpretation of Agreement .
(a) Each party hereto acknowledges that it has participated in the drafting of this Agreement, and any applicable rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in connection with the construction or interpretation of this Agreement.
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(b) Whenever required by the context hereof, the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; and the neuter gender will include the masculine and feminine genders.
(c) As used in this Agreement, the words "include" and "including," and variations thereof, will not be deemed to be terms of limitation, and will be deemed to be followed by the words "without limitation."
(d) Unless the context otherwise requires, references in this Agreement to " Sections ," " Schedules " and " Exhibits " are intended to refer to Sections of and Schedules and Exhibits to this Agreement.
(e) The table of contents of this Agreement and the headings contained in this Agreement are for convenience of reference only, will not be deemed to be a part of this Agreement and will not be referred to in connection with the construction or interpretation of this Agreement.
Section 7.15 . Expenses . Except as otherwise expressly provided herein, each party hereto shall bear his, her, or its own costs and expenses (including legal fees and expenses) incurred in connection with the Transaction Documents and transactions contemplated thereby.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF , the parties hereto have caused this Asset Purchase Agreement to be executed as of the date first set forth above.
SELLER : | ||
SMITHERS AVANZA TOXICOLOGY SERVICES LLC | ||
By: | ||
Printed Name: J. Michael Hochschwender | ||
Title: Chief Executive Officer | ||
MEMBER : | ||
THE SMITHERS GROUP, INC. | ||
By: | ||
Printed Name: J. Michael Hochschwender | ||
Title: Chief Executive Officer | ||
PURCHASER : | ||
ORIOLE TOXICOLOGY SERVICES LLC | ||
By: | ||
Printed Name: Robert Leasure, Jr. | ||
Title: President | ||
PARENT : | ||
BIOANALYTICAL SYSTEMS, INC . | ||
By: | ||
Printed Name: Robert Leasure, Jr. | ||
Title: President and Chief Executive Officer |
[Signature Page to Asset Purchase Agreement]
EXHIBIT A
SELLER PROMISSORY NOTE
See Attached.
EXHIBIT B
[Reserved.]
EXHIBIT C
CALCULATION OF NET WORKING CAPITAL
Net Working Capital Certificate | Estimate | ||||
Current Assets | |||||
Accounts Receivable | $ | 826,481.42 | |||
Less – Doubtful Accounts | $ | (26,152.00 | ) | ||
Total Receivables | $ | 800,329.42 | |||
Earned but Unbilled | $ | 226,382.52 | |||
Prepaid Expense - Other | $ | 127,589.99 | |||
Total Other Current Assets | $ | 353,972.51 | |||
Total Current Assets | $ | 1,154,301.93 | |||
Current Liabilities | |||||
Accrued Expenses | $ | 17,701.96 | |||
Accrued Professional Fees | $ | 15,544.00 | |||
Accrued Sales Incentive | $ | 5,000.00 | |||
Accrued vacation | $ | 171,581.65 | |||
Deferred Active Fees] | $ | 40,000.00 | |||
Deferred Income | $ | 538,981.61 | |||
Total Current Liabilities | $ | 788,709.22 | |||
Net Working Capital | $ | 365,592.71 |
Exhibit 10.1
Loan Number _____________
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of May 1, 2019, is entered into by and between BIOANALYTICAL SYSTEMS, INC., an Indiana corporation (“Borrower”), and FIRST INTERNET BANK OF INDIANA , an Indiana state bank (“Bank”).
WITNESSETH THAT:
WHEREAS , Borrower and Bank entered into certain loan documents, including but not limited to that certain Credit Agreement dated June 23, 2017, as amended by that certain First Amendment to Credit Agreement dated July 2, 2018, as further amended by that Second Amendment to Credit Agreement dated September 6, 2018, and as further amended by that Third Amendment to Credit Agreement dated September 28, 2018 (the “Loan Agreement”); and
WHEREAS , Borrower has applied to Bank for modifications to the Loan Agreement and existing credit facilities, and for extension of an additional term loan in the principal amount of One Million Two Hundred Seventy Thousand Six Hundred Forty-Six and 10/100 Dollars ($1,270,646.10), and for extension of an additional capex line of credit in the principal amount of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00); and
WHEREAS , Bank is willing to make such modifications to the Loan Agreement and extend such additional term loan and line of credit on the terms and conditions stated herein.
NOW, THEREFORE , in consideration of these premises and the undertakings of the parties hereto, Borrower and Bank hereby agree as follows:
A. Effect of Amendment . This Amendment shall not change, modify, amend or revise the terms, conditions and provisions of the Loan Agreement, the terms and provisions of which are incorporated herein by reference, except as expressly provided herein and agreed upon by the parties hereto. This Amendment is not intended to be nor shall it constitute a novation or accord and satisfaction of the outstanding instruments by and between the parties hereto. Borrower and Bank agree that, except as expressly provided herein, all terms and conditions of the Loan Agreement shall remain and continue in full force and effect. Borrower acknowledges and agrees that the indebtedness under the Loan Agreement remains outstanding and is not extinguished, paid or retired by this Amendment, or any other agreements between the parties hereto prior to the date hereof, and that Borrower is and continues to be fully liable for all obligations to Bank contemplated by or arising out of the Loan Agreement. Except as expressly provided otherwise by this Amendment, the credit facilities contemplated by this Amendment shall be made according to and pursuant to all conditions, covenants, representations and warranties contained in the Loan Agreement, as amended hereby.
B. Definitions . Terms defined in the Loan Agreement which are used herein shall have the same meaning as set forth in the Loan Agreement unless otherwise specified herein.
C. Additional Obligations of Borrower . In addition to the fees stated in the Loan Agreement, Borrower shall also pay: (i) all reasonable costs and expenses incidental to this Amendment, including, but not limited to, reasonable fees and out-of-pocket expenses of Bank’s counsel; and (ii) a non-refundable renewal fee in the amount of Twenty-Three Thousand Seven Hundred Eighty and No/100 Dollars ($23,780.00), which fee shall be due and payable concurrently herewith, and (iii) a non-refundable commitment fee in the amount of Twenty Thousand Two Hundred Fifty and No/100 Dollars ($20,250.00), which fee shall be due and payable concurrently herewith.
D. Reaffirmation of Representations and Warranties . Borrower hereby reaffirms all representations and warranties contained in Section 3 of the Loan Agreement and within Section 3 of the Loan Agreement, all references to the Loan Agreement shall be deemed to include this Amendment.
E. Reaffirmation of Covenants . Borrower hereby reaffirms its duty to comply with the covenants contained in Sections 4 and 5 of the Loan Agreement, as the same are modified herein.
F. Reaffirmation of Events of Default and Rights of Bank . Borrower hereby reaffirms the events of default and rights of Bank contained in Section 6 of the Loan Agreement, as amended by this Amendment.
G. Amendments .
(a) The following provisions shall be new or amended definitions in Exhibit 1 of the Loan Agreement:
“Capital Expenditures” means all expenditures which, in accordance with GAAP, would be classified as capital expenditures.
“Eligible Account” means an Account (as defined in the Uniform Commercial Code) owing to the Borrower or any Entity Guarantor (exclusive of any Account owing to an Affiliate that is not an Entity Guarantor) from an Account Debtor which meets each of the following requirements:
(a) it arises from the sale or lease of goods or the rendering of services which have been earned or billed in accordance with signed contracts by the Borrower or any Entity Guarantor; and if it arises from the sale or lease of goods, (i) such goods comply with such Account Debtor’s specifications (if any) and have been delivered to such Account Debtor and (ii) the Borrower or any Entity Guarantor has possession of, or if requested by the Bank has delivered to the Lender, delivery receipts evidencing such delivery;
(b) it (i) is subject to a perfected, first priority Lien in favor of the Bank and (ii) is not subject to any other assignment, claim or Lien;
(c) it is a valid, legally enforceable and unconditional obligation of the Account Debtor with respect thereto, and is not subject to the fulfillment of any condition whatsoever or any counterclaim, setoff, reduction (collectively, “contra accounts”) or any credit, allowance, discount, rebate or adjustment by the Account Debtor with respect thereto, or to any claim by such Account Debtor denying liability thereunder in whole or in part and the Account Debtor has not refused to accept and/or has not returned or offered to return any of the goods or services which are the subject of such Account;
(d) there is no bankruptcy, insolvency or liquidation proceeding pending by or against the Account Debtor with respect thereto;
(e) the Account Debtor with respect thereto is a resident or citizen of, and is located within, the United States, unless the sale of goods or services giving rise to such Account is on letter of credit, banker’s acceptance or other credit support terms reasonably satisfactory to the Bank;
(f) it is not an Account arising from a “sale on approval,” “sale or return,” “consignment” or “bill and hold” or subject to any other repurchase or return agreement;
(g) it is not an Account with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by the Borrower or any Entity Guarantor (or by any agent or custodian of the Borrower or any Entity Guarantor) for the account of or subject to further and/or future direction from the Account Debtor with respect thereto;
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(h) it arises in the ordinary course of business of the Borrower or any Entity Guarantor;
(i) if the Account Debtor is the United States or any department, agency or instrumentality thereof, the Borrower or any Entity Guarantor has assigned its right to payment of such Account to the Bank pursuant to the Assignment of Claims Act of 1940, and evidence (satisfactory to the Bank) of such assignment has been delivered to the Bank;
(j) if the Borrower or any Entity Guarantor maintains a credit limit for an Account Debtor, the aggregate dollar amount of Accounts due from such Account Debtor, including such Account, does not exceed such credit limit;
(k) if the Account is evidenced by chattel paper or an instrument, the originals of such chattel paper or instrument shall have been endorsed and/or assigned and delivered to the Bank or, in the case of electronic chattel paper, shall be in the control of the Bank, in each case in a manner satisfactory to the Bank;
(l) such Account is evidenced by an invoice delivered to the related Account Debtor and is not more than (i) ninety (90) days past the original invoice date thereof, according to the original terms of sale;
(m) it is not an Account with respect to an Account Debtor that is located in any jurisdiction which has adopted a statute or other requirement with respect to which any Person that obtains business from within such jurisdiction must file a notice of business activities report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts unless (i) such notice of business activities report has been duly and timely filed or the Borrower or any Entity Guarantor is exempt from filing such report and has provided the Bank with satisfactory evidence of such exemption or (ii) the failure to make such filings may be cured retroactively by the Borrower or any Entity Guarantor for a nominal fee;
(n) the Account Debtor with respect thereto is not an Affiliate of the Borrower or any Entity Guarantor; and
(o) it is not owed by an Account Debtor with respect to which 15% or more of the aggregate amount of outstanding Accounts owed at such time by such Account Debtor is classified as ineligible under clause (l) of this definition .
An Account which is at any time an Eligible Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account. Further, with respect to any Account, if the Bank at any time hereafter determines in its reasonable discretion that the prospect of payment or performance by the Account Debtor with respect thereto is materially impaired for any reason whatsoever, such Account after written notice of such determination is given to the Borrower shall cease to be an Eligible Account.
“Entity Guarantors” means BAS Evansville, Inc., Seventh Wave Indiana and Oriole.
“Fourth Amendment” means that certain Fourth Amendment to Credit Agreement executed by and between Borrower and Bank dated as of May 1, 2019.
“Loans” means the Term Loan, Term Loan #2, Term Loan #3, Capex Line of Credit, Construction Loan, Equipment Loan, and the Revolving Loans.
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“Notes” means the Term Note, Term Note #2, Term Note #3, Capex Line of Credit Note, Construction Loan Note, Equipment Loan Note and Revolving Note, together with any renewals, amendments, restatements and extensions thereof.
“Oriole” means Oriole Toxicology Services LLC, an Indiana limited liability company.
“Run-rate Cost-Savings & Synergies” means the amount of "run rate" cost savings, operating expense reductions and synergies related to the acquisition of certain assets of Smithers Avanza Toxicology Services LLC projected by the Borrower in good faith to result from actions taken or expected to be taken within 12 months after the Closing Date. The "run rate" cost savings, operating expense reductions and synergies shall be:
(a) calculated on a Pro Forma basis as though such "run rate" cost savings, operating expense reductions and synergies had been realized on the first day of the period for which Consolidated EBITDA is being determined), net of the amount of actual benefits realized during such period.
(b) reasonably identifiable and factually supportable (in the good faith determination of the Borrower); and
(c) in any Test Period equal to the lesser of $560,000 or 15% of consolidated trailing 12 month period EBITDA, calculated before giving effect thereto, for such test period determined on a pro forma basis.
“Security Agreement” means, individually or collectively as the context requires, (i) the Security Agreement and Perfection Certificate dated June 23, 2017 between Borrower and Bank, securing the Obligations, (ii) the Security Agreement and Perfection Certificate dated June 23, 2017 between Bank and BAS Evansville, Inc., securing its Guaranty of the Obligations, (iii) the Amended and Restated Security Agreement and Perfection Certificate dated September 6, 2018 between Bank and Seventh Wave Indiana, securing its Guaranty of the Obligations, (iv) Security Agreement and Perfection Certificate dated May 1, 2019 between Bank and Oriole, securing its Guaranty of the Obligations, (v) the Grant of Security Interest in Trademarks dated June 23, 2017 executed by Borrower, securing the Obligations, and (vi) the Grant of Security Interest in Copyrights dated June 23, 2017 executed by Borrower, securing the Obligations.
“Unfunded Capital Expenditures” means, for any period, the amount equal to all expenditures (by the expenditure of cash or fundings under working capital revolving debt) made by the Company and its Subsidiaries during such period in respect of the purchase or other acquisition or improvement of any fixed or capital asset and any other amounts so expended or funded which would, in accordance with GAAP, be set forth as capital expenditures on the consolidated statement of cash flows of the Company and its Subsidiaries for such period.
(b) Section 2.1 of the Loan Agreement is hereby deleted and replaced with the following:
2.1. Revolving Credit Loans . (a) Subject to the terms and conditions of this Agreement, Bank hereby extends or continues to extend to Borrower a revolving line of credit facility (the “Facility”) under which Bank shall make loans (the “Revolving Loans”) to Borrower at Borrower’s request from time to time during the term of this Agreement in an aggregate amount not to exceed Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00). Borrower may, from time to time, borrow, repay (without penalty or charge), and reborrow under the Facility, provided that the principal amount of all Revolving Loans outstanding at any one time under the Facility will not exceed the lesser of (i) Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) and (ii) the Borrowing Base (the “Revolving Loan Availability”). If the amount of Revolving Loans outstanding at any time under the Facility exceeds the Revolving Loan Availability, Borrower will, upon request, immediately pay the amount of such excess to Bank in cash. In the event Borrower fails to pay such excess following any such request, Bank may, in its discretion, setoff such amount against Borrower’s accounts at Bank, if any, and, if such excess is not satisfied by such setoff, declare an Event of Default
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(b) Borrower may request a Revolving Loan by written or telephone notice to Bank. Bank will make Revolving Loans by crediting the amount thereof to Borrower’s account at Bank, if any, or as otherwise directed by Borrower and approved by Bank. Loan proceeds will be used for general business purposes.
(c) On June 23, 2017, Borrower issued and delivered to Bank a Revolving Note in the original principal amount of Two Million and No/100 Dollars ($2,000,000.00) (the “Original Note”), which Original Note has been previously amended and is being further amended and restated as of May 1, 2019 in the maximum principal amount of Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) in the form attached hereto on Exhibit 2.1B (the “Revolving Note”), bearing interest and repayable as specified in the Revolving Note.
(d) The term of the Facility will expire on June 30, 2020, and the Revolving Note will become payable in full on that date.
(c) Section 2.7 is hereby added to the Loan Agreement as follows:
2.7 Term Loan #3 . (a) Subject to the terms and conditions hereof, Bank shall make to Borrower a term loan (the “Term Loan #3”) on May 1, 2019 in an aggregate amount of One Million Two Hundred Seventy Thousand Six Hundred Forty-Six and 10/100 Dollars ($1,270,646.10). The unpaid principal balance, together with all accrued but unpaid interest and reimbursable expenses, shall be payable in accordance with the terms of the Term Loan #3 as evidenced by a Term Loan Note (the “Term Note #3”) to be issued by Borrower to Bank dated May 1, 2019 with a final maturity date of November 1, 2025, and otherwise in substantially the form of Exhibit 2.4 .
(b) The proceeds of the Term Loan #3 will be used to support the acquisition of the assets of Smithers Avanza Toxicology Services LLC and for general business purposes.
(c) Borrower shall have the right to prepay the principal of the Term Loan #3 in accordance with the provisions and prepayment penalties set forth in the Term Note #3. Early principal payments will not, unless agreed to by Bank in writing, relieve Borrower of Borrower’s obligation to continue to make regular monthly payments required by the Term Note #3. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Bank payments marked “paid in full”, “without recourse” or similar language. If Borrower sends such a payment, Bank may accept it without losing any of Bank’s rights under the Term Note #3, and Borrower will remain obligated to pay any further amount owed to Bank.
(d) Section 2.8 is hereby added to the Loan Agreement as follows:
2.8 Capex Line of Credit . (a) Subject to the terms and conditions hereof, Bank shall lend to Borrower an equipment draw loan (the “Capex Line of Credit”) on May 1, 2019 in an aggregate amount of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00). So long as no Event of Default has occurred, Borrower may obtain advances under the Equipment Loan until June 30, 2020, at which time Borrower’s right to obtain advances under the Capex Line of Credit shall terminate and the unpaid principal balance, together with all accrued but unpaid interest and reimbursable expenses, shall be payable in accordance with the terms of that certain Capex Line of Credit Note issued by Borrower to Bank dated May 1, 2019, as amended, modified or restated from time to time (the “Capex Line of Credit Note”). The term of the Capex Line of Credit shall expire on June 30, 2020 (the “Capex Line of Credit Maturity Date”), unless the Capex Line of Credit is sooner paid pursuant to the terms hereof.
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(b) The proceeds of the Capex Line of Credit will be used to fund equipment needs of the Borrower.
(c) Borrower shall have the right to prepay the principal of the Capex Line of Credit in accordance with the provisions and prepayment penalties set forth in the Capex Line of Credit Note. Early principal payments will not, unless agreed to by Bank in writing, relieve Borrower of Borrower’s obligation to continue to make regular monthly payments required by the Capex Line of Credit Note. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Bank payments marked “paid in full”, “without recourse” or similar language. If Borrower sends such a payment, Bank may accept it without losing any of Bank’s rights under the Capex Line of Credit Note, and Borrower will remain obligated to pay any further amount owed to Bank.
(e) Section 5.10 of the Loan Agreement is hereby deleted and replaced with the following:
(a) Borrower shall not permit the Minimum Debt Service Coverage Ratio, tested quarterly and measured on a trailing twelve (12) month basis, to be less than the following each quarter ending:
(i) 1.25 to 1.0 at March 31, 2019;
(ii) 1.25 to 1.0 at June 30, 2019;
(iii) 1.15 to 1.0 at September 30, 2019;
(iv) 1.15 to 1.0 at December 31, 2019;
(v) 1.20 to 1.0 at March 31, 2020;
(vi) 1.25 to 1.0 at June 30, 2020 and each quarter thereafter.
The “Minimum Debt Service Coverage Ratio” means, for any computation period, the ratio of: (a) the sum of Borrower’s (i) consolidated pre-tax net income for such period plus (ii) consolidated interest expense for such period, plus (ii) consolidated amortization expense during such period, plus (iv) consolidated depreciation expense during such period, plus (v) consolidated stock compensation expense during such period, plus (vi) non-recurring transaction costs of up to $525,000 related to the acquisition of Seventh Wave Laboratories, LLC and/or expansion of Premises #2 , as approved by Bank through September 30, 2019 plus (vii) non-recurring transaction costs of up to $520,000 related to the acquisition of Smithers Avanza Toxicology Services LLC, incurred through December 31, 2019, as approved by Bank through June 30, 2020, plus (viii) run-rate cost savings and synergies in the quarters ending June 30, 2019 through March 31, 2020 related to the acquisition of Smithers Avanza Toxicology Services LLC (the sum of items (i) through (viii) “EBITDA”) less (iv) distributions/dividends paid by Borrower in cash during such period, less (v) consolidated unfunded capital expenditure expenses during such period, excluding unfunded capital expenditures related to building expansion costs of up to $400,000 incurred during the fiscal year ended September 30, 2018 and fiscal year ended September 30, 2019 divided by (b) the sum of Borrower’s (i) scheduled or required principal payments, including such payments on account of debt in favor of the Bank, subordinated debt and capital leases, during such period, plus (ii) consolidated cash interest payments made during such period.
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(b) Beginning March 31, 2019, the Cash Flow Leverage Ratio, tested at the end of each fiscal quarter ending as follows:
(i) Suspended at March 31, 2019;
(ii) Suspended at June 30, 2019;
(iii) Suspended at September 30, 2019;
(iv) Suspended at December 31, 2019;
(v) March 31, 2020 not to exceed 5.00 to 1.00x;
(vi) June 30, 2020 and thereafter not to exceed 4.50x to 1.00x.
The “Cash Flow Coverage Ratio” means, for any computation period, the ratio of: (a) Borrower’s Total Funded Debt as of the last day of such period, divided by (b) Borrower’s EBITDA calculated on a trailing twelve (12) month basis. For purposes of this calculation, “Total Funded Debt “means, as of any date of determination, the aggregate principal amount of indebtedness of the Borrower outstanding on such date, determined in accordance with GAAP, consisting of (i) indebtedness for borrowed money, (ii) unreimbursed obligations in respect of drawn letters of credit, (iii) obligations in respect of capitalized leases, (iv) obligations in respect of purchase money debt, and (v) debt obligations evidenced by bonds, debentures, promissory notes, loan agreements or similar instruments.
(f) Section 4.12 is hereby added to the Agreement as follows:
4.12 Life Insurance . Borrower shall, not later than August 1, 2019, obtain a life insurance policy on the life of Robert Leasure, Jr. in an amount not less than Two Million and No/100 Dollars ($2,000,000.00), provide Bank with an assignment of such life insurance policy as collateral for all obligations of Borrower now existing or hereafter arising in favor of Bank, and maintain such life insurance policy while any Obligations of the Borrower exist under this Agreement.
H. Necessary Documents . The obligation of Bank to make the modifications to the Loan Agreement under this Amendment is subject to the receipt by Bank on or before the date hereof of all of the following, each dated as of the date hereof or another date acceptable to Bank and each to be in the form and substance approved by Bank on the date on which this Amendment is executed and delivered by Borrower and Bank:
(1) This Amendment executed by Borrower.
(2) The Amended and Restated Revolving Note executed by Borrower.
(3) Term Loan Note (Term Note #3) executed by Borrower.
(4) Capex Line of Credit Note executed by Borrower.
(5) Amended and Restated Equipment Loan Note executed by Borrower.
(6) Amended and Restated Construction Loan Note executed by Borrower.
(7) Amended and Restated Guaranty Agreement executed by BAS Evansville, Inc.
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(8) Amended and Restated Guaranty Agreement executed by Seventh Wave Laboratories LLC.
(9) Guaranty Agreement executed by Oriole Toxicology Services LLC.
(10) Security Agreement executed by Oriole Toxicology Services LLC.
(11) Third Modification of Mortgage (Premises #1).
(12) First Modification of Amended and Restated Mortgage (Premises #2).
(13) Fourth Amended and Restated Environmental Indemnity Agreement executed by Borrower, BAS Evansville, Inc., Seventh Wave Indiana, and Oriole Toxicology Services LLC.
(14) Subordination Agreement executed by Borrower, Oriole Toxicology Services LLC, Bank and Smithers Avanza Toxicology Services LLC.
(15) Guarantor’s Certificate executed by Seventh Wave Laboratories LLC.
(16) Guarantor’s Certificate executed by BAS Evansville, Inc.
(17) Guarantor’s Certificate executed by Oriole Toxicology Services LLC.
(18) Borrower’s Certificate executed by Borrower.
(19) Patriot Act Certification executed by Oriole Toxicology Services LLC.
(20) Such other documents, information, opinions, etc., as Bank may reasonably request.
I. Representations and Warranties of Borrower . Borrower hereby represents and warrants, in addition to any other representations and warranties contained herein, in the Loan Agreement, the Loan Documents (as defined in the Loan Agreement) or any other document, writing or statement delivered or mailed to Bank or its agent by Borrower, as follows:
(1) This Amendment constitutes a legal, valid and binding obligation of Borrower enforceable in accordance with its terms. Borrower has taken all necessary and appropriate corporate action for the approval of this Amendment and the authorization of the execution, delivery and performance thereof.
(2) There is no Event of Default under the Loan Agreement, this Amendment or the Loan Documents.
(3) Borrower hereby specifically confirms and ratifies its obligations, waivers and consents under each of the Loan Documents.
(4) Except as specifically amended herein, all representations, warranties and other assertions of fact contained in the Loan Agreement and the Loan Documents continue to be true, accurate and complete.
(5) Except as provided in writing to Bank prior to the date hereof, there have been no changes to the Articles of Incorporation, By-Laws, the identities of the named executive officers of Borrower, or the composition of the board of directors of Borrower since execution of the Loan Agreement.
8 |
(6) Borrower acknowledges that the definition “Loan Documents” shall include this Amendment and all the documents executed contemporaneously herewith.
J. Consents. (a) Upon Bank’s receipt of the fully executed Subordination Agreement, Bank consents to the Borrower guarantying the obligations of Oriole Toxicology Services LLC, as maker under that certain Unsecured Subordinated Promissory Note payable to Smithers Avanza Toxicology Services LLC, in the maximum principal amount of $810,000.00.
(b) Bank hereby consents to Borrower guarantying the lease for the primary space to be occupied by Oriole Toxicology Services LLC, pursuant to a certain lease agreement originally entered into between Avanza Development Services, LLC and Rickman Firstfield Associates dated December 30, 2009 (as amended from time to time, the “Avanza Lease”), which Avanza Lease has been or will be assigned to Oriole Toxicology Services LLC, as the new lessee, and further amended on or around May 1, 2019.
K. Governing Law . This Amendment has been executed and delivered and is intended to be performed in the State of Indiana and shall be governed, construed and enforced in all respects in accordance with the substantive laws of the State of Indiana.
L. Headings . The section headings used in this Amendment are for convenience only and shall not be read or construed as limiting the substance or generality of this Amendment.
M. Counterparts . This Amendment may be signed in one or more counterparts, each of which shall be considered an original, with the same effect as if the signatures were upon the same instrument.
N. Modification . This Amendment may be amended, modified, renewed or extended only by written instrument executed in the manner of its original execution.
O. Waiver of Certain Rights . Borrower waives acceptance or notice of acceptance hereof and agrees that the Loan Agreement, this Amendment, and all of the other Loan Documents shall be fully valid, binding, effective and enforceable as of the date hereof, even though this Amendment and any one or more of the other Loan Documents which require the signature of Bank, may be executed by an on behalf of Bank on other than the date hereof.
P. Waiver of Defenses and Claims . In consideration of the financial accommodations provided to Borrower by Bank as contemplated by this Amendment, Borrower hereby waives, releases and forever discharges Bank from and against any and all rights, claims or causes of action against Bank arising under Bank’s actions or inactions with respect to the Loan Documents or any security interest, lien or collateral in connection therewith as well as any and all rights of set off, defenses, claims, causes of action and any other bar to the enforcement of the Loan Documents which exist as of the date hereof.
Q. Force and Effect . Except as otherwise modified herein, all other terms and conditions of the Loan Agreement remain in full force and effect.
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Loan Number _____________
[SIGNATURE PAGE – FOURTH AMENDMENT TO CREDIT AGREEMENT]
IN WITNESS WHEREOF , the parties hereto have caused this Fourth Amendment to Credit Agreement to be executed by their duly authorized officers as of the day and year first above written.
Bioanalytical Systems, Inc. | ||
By: | /s/ Robert Leasure, Jr. | |
Robert Leasure, Jr., President and Chief Executive Officer | ||
FIRST INTERNET BANK OF INDIANA | ||
By: | /s/ Katrina McWilliams | |
Katrina McWilliams, Vice President |
Exhibit 10.2
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 30th day of December, 2009, by and between RICKMAN FIRSTFIELD ASSOCIATES ("LANDLORD") and AVANZA LABORATORIES, LLC ("TENANT").
WITNESSETH:
1. | DEMISE OF PREMISES |
Landlord hereby demises unto Tenant, and Tenant hereby leases from Landlord for the terms and upon the conditions set forth in this Lease 30,600 square feet of space in the building located at 15 Firstfield Road, Gaithersburg, Maryland (the "Building"), as set forth on Exhibit A, hereto attached, said space being referred to as the "Premises."
2. | TERM |
The term of this Lease shall be for a period of 10 years, commencing on the 1st day of January, 2010, and terminating on the 31st day of December, 2019, with an option for an additional 5 years on the same terms and conditions in this Lease, provided that Tenant shall have given the Landlord written notice of Tenant's intention to do so at least six (6) months prior to the expiration of this Lease and that Tenant is not in default under this Lease.
3. | RENT |
The Tenant shall pay to the Landlord an annual rental (herein called "Minimum Rent") in the amount of FIVE HUNDRED THIRTY FIVE THOUSAND FIVE HUNDRED and NO/100 DOLLARS ($535,500.00), subject to adjustment as hereinafter set forth, payable without deduction or set off in equal monthly installments of FORTY FOUR THOUSAND SIX HUNDRED TWENTY FIVE and 50/100 DOLLARS ($44,625.00) in advance, the first installment of which is due and payable on or before January 1, 2010 and upon commencement all subsequent installments due and payable on the first day of each calendar month thereafter during the term of the Lease until the total rent provided for herein is paid. No payment by Tenant or receipt of Landlord of a lesser amount than a monthly installment of rent herein stipulated, or endorsement or statement on any check or any letter accompanying any check for payment as rent be deemed an accord and satisfaction, and Landlord may accept such check for payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for in this Lease.
4. | ADJUSTMENT OF MINIMUM RENT |
The Minimum Rent shall be increased at the end of each lease year during the term hereby by three percent (3%) of the rent then being paid. There shall be no additional pass-throughs of increases in operating expenses except for real estate taxes or as otherwise provided for herein.
5. | REAL ESTATE TAXES |
In the event the real estate taxes levied or assessed against the land and Building on which the Premises are a part in future tax years are greater than the real estate taxes for the Base Year, the Tenant shall pay within thirty (30) days after submission of the bill to Tenant for the increase in real estate taxes, as additional rent, a proportionate share of such increase, which proportionate share shall be computed at 100% of the increase in taxes, but shall exclude any fine, penalty, or interest charge for late or non-payment of taxes by Landlord. The Base Year shall be July 1, 1991, to June 30, 1992.
Any reasonable expense incurred by Landlord (including counsel fees) in contesting any tax increase shall be included as an item of taxes for the purpose of computing additional rent due Landlord. Landlord, however, shall be under no obligation to contest any tax increase.
6. | UTILITIES |
Tenant shall be responsible for the payment of all utilities used or consumed by the Tenant in and upon the Premises. Electric, Gas, and Water shall be separately metered. In the event any utility service to the Premises shall be interrupted for a period of more than two (2) days due to the negligence or willful misconduct of Landlord, its agents or servants, the Minimum Rent shall abate until such services are fully rendered.
Landlord shall not be liable to Tenant for any damage or inconvenience caused by the cessation or interruption of any utility service, or the elevators in the Building, occasioned by fire, accident, strike or other cause beyond Landlord's control.
7. | USE OF PREMISES |
Tenant shall use the Premises only for laboratory and office purposes, and for no other purpose, except as approved by Landlord in advance, in writing, which approval shall not be unreasonably withheld. Tenant shall not make any use of the Premises which would disturb the quiet enjoyment of the Landlord or prejudice or increase the fire insurance premium for the Building, and shall comply with all laws and regulations of all governmental authorities pertaining to Tenant's use of Premises.
8. | WASTE REMOVAL |
Tenant shall be responsible for removal of waste generated by Tenant's operation. This includes waste service fees levied by local jurisdictions.
9. | HAZARDOUS MATERIALS |
Tenant shall be permitted to store Hazardous Materials on the Premises and shall comply with all laws and regulations of all governmental authorities pertaining to Tenant's use of the Premises, including, without limitation, all Environmental Laws (as hereinafter defined) and laws pertaining to Hazardous Materials and Air and Water Quality. The term "Hazardous Materials" means and includes any petroleum products and/or any hazardous toxic or other dangerous waste, substance or material defined as such in the Environmental Laws. The term "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act, any "Superfund" or "Superlien" law, or any other federal, state or local statute, law, ordinance, code, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning the use or storage of Hazardous Materials. All such materials must be completely removed upon expiration of this Lease, and any de-contamination certificates required by the Landlord or any government authority must be obtained and delivered to the Landlord.
Tenant shall obtain and maintain, in full force and effect, all necessary government licenses, permits and approvals legally required for materials used in the conduct of its business. If the presence of any Hazardous Materials on the Premises caused or permitted by Tenant results in any contamination of the Premises or any portion of the Building or Common Areas, Tenant shall promptly take all actions, at its sole expense, necessary to return the Premises to the condition existing prior to the introduction of such Hazardous Materials, provided that all such actions shall be subject to the approval of Landlord, which approval shall not be unreasonably withheld.
At the Commencement Date of the Lease and on January 1 of each year thereafter, Tenant shall disclose to Landlord the names and amounts of all Hazardous Materials which are to be stored, used or disposed of on the Premises.
Any Hazardous Materials stored or used on the Premises must not in any way prejudice the Landlord's insurance or increase the fire hazards to a greater extent than necessarily incident to the business for which the Premises are leased.
10. | LATE CHARGE |
If any installment of rent accruing hereunder or any other sums payable hereunder shall not be paid within fifteen (15) days by Tenant, such installment and other sums shall be increased without affecting the Landlord's other rights under this Lease, by a late charge of five percent (5%) of the delinquent installment. Anything contained herein to the contrary notwithstanding.
11. | REPAIRS AND MAINTENANCE |
Landlord shall be responsible for all structural repairs, including repairs to the roof and load-bearing walls of the Building, and maintaining the parking area and sidewalks, including snow removal.
The Tenant shall be responsible for the maintenance and repair of the Premises and all fixtures, appliances and equipment therein, including, but not limited to, the Heating and Air Conditioning system(s) serving Tenant's suite. Landlord will pay for major Heating and Air Conditioning component replacement and all repairs to the Landlord installed heating and air conditioning system(s) in excess of Three Hundred Dollars ($300.00) per occurrence per Heating and Air Conditioning unit. Landlord will repair and replace any glass breakage, provided it is not the result of the Tenant's willful or negligent act.
Tenant shall provide its own char service. Tenant, at its sole expense, shall keep all Tenant fixtures and equipment in the Premises in safe and sanitary condition and good order and repair, together with related plumbing, electrical or other utility service, whether installed by Tenant or by Landlord on Tenant's behalf. Tenant shall pay for all damage to the Building and any fixtures and appurtenances related thereto due to the malfunction, lack of repair, or improper installation of the Tenant's fixtures and equipment.
12. | LANDLORD'S WORK |
Landlord shall make the following improvements to the Premises:
· | Upgrade street power by a minimum of 200 amps. |
· | Replace the failing 175kw Generator under loading dock within ninety (90) days of commencement date. |
13. | TENANT ALTERATIONS |
All alterations, improvements, or additions to the demised Premises to be made by Tenant shall be subject to the written consent of the Landlord, which consent shall not be unreasonably withheld, provided such alterations and improvements do not weaken the structural integrity of the Building or detract from its dignity and/or uniformity. All alterations and improvements and/or additions made by Tenant shall remain upon the Premises at the expiration or earlier termination of this Lease and shall become the property of the Landlord, unless Landlord shall, at the time of approval of the alteration, provide written notice to Tenant to remove the same, in which event Tenant shall remove such alterations, improvements and/or additions, and restore the Premises to the same good order and condition in which it was at the commencement of this Lease, reasonable wear and tear and unavoidable casualty excepted. Should Tenant fail to do so, Landlord may do so, collecting the reasonable cost and expense thereof from Tenant as additional rent.
14. | TRADE FIXTURES |
All trade fixtures, telephone equipment, and apparatus installed by Tenant in the Premises shall remain the property of Tenant and shall be removed at the expiration or earlier termination of this Lease and, upon such removal, Tenant shall repair any damage caused by the removal and shall promptly restore the Premises to their good order and condition. Any such trade fixture not removed prior to such termination shall be considered abandoned property, but such abandonment shall not release Tenant of its obligation to pay for the cost of removing such trade fixtures and repairing any damage caused by the removal.
15. | QUIET ENJOYMENT |
Landlord covenants that, subject to payment of the rent herein provided and performance by the Tenant of all other covenants herein contained, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises for the term hereof and options.
16. | SURRENDER OF PREMISES |
Upon the expiration or termination of this Lease, Tenant shall quit and surrender the Premises to the Landlord broom clean and shall remove all of its property therefrom. If the removal of any such property shall result in damaging the premises, or leaving any holes in the floors, walls or ceiling therein, the Tenant shall make the appropriate repairs with Landlord approved building materials prior to the expiration of this lease. The obligation of this paragraph shall survive the termination of the Lease.
17. | INSURANCE |
Tenant covenants and agrees to maintain and carry, at all times during the term of this Lease, in companies qualified and authorized to transact business in the State of Maryland, general liability insurance in amounts of $500,000.00 per person, $1,000,000.00 per occurrence and $100,000.00 for damage to property on the Premises or arising out of the use thereof by Tenant or its agents. All policies of insurance shall provide that they may not be canceled, except on thirty (30) days written notice to Landlord, and all such policies shall name Landlord as an additional insured.
Prior to commencement, Tenant shall furnish Landlord with satisfactory proof that the insurance herein provided for is at all times in full force and effect. If either party hereto is paid any proceeds under any policy of insurance naming such party as an insured on account of any loss, damage or liability, then such party hereby releases the other party to (and only to) the extent of the amount of such proceeds, from any and all liability for such loss or damage, notwithstanding negligent or intentionally tortuous act or omission of the other party, its agents or employees; provided, such release shall be effective only as to a loss of damage occurring while the appropriate policy of insurance of the releasing party provides that such release shall not impair the effectiveness of such policy or the insured's ability to recover thereunder. Each party hereto shall use reasonable efforts to have a clause to such effect included in its said policies, and shall promptly notify the other in writing if such clause cannot be included in any such policy.
18. | INDEMNIFICATION |
Tenant shall indemnify and hold harmless the Landlord from, and name LANDLORD as additional insured on policy regarding, any and all liability, damage, expense, cause of action, or claims arising out of injury to persons or to property on the Premises, except for the negligence or willful misconduct of Landlord, its agents, employees, or servants.
19. | DAMAGE BY FIRE OR CASUALTY |
(a) | If the Premises are damaged by fire or other casualty, but are not thereby rendered untenantable in whole or in part, Landlord, at its own expense, and subject to the limitations set forth in this Lease, shall cause such damage to be repaired and the Minimum Rent and Additional Rent shall not be abated. |
If, by reason of any damage or destruction, the Premises shall be rendered untenantable in whole or in part and cannot be repaired and made tenantable within one hundred twenty (120) days after such damage: (i) Landlord, at its option and its own expense, may cause the damage to be repaired and the Minimum Rent and Additional Rent shall be abated proportionately as to the portion of the Premises rendered untenantable while it is untenantable; or (ii) Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within thirty (30) days of the occurrence of such damage or destruction, to terminate this Lease, whereupon the Minimum Rent and Additional Rent shall be adjusted as of the date of such termination.
(b) | In the event that twenty-five percent (25%) or more of the rentable floor area of the Building shall be damaged or destroyed by fire or other cause, notwithstanding that the Premises may be unaffected by such fire or other damage, Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within thirty (30) days after such occurrence, to terminate this Lease. Upon the giving of such notice, the Minimum Rent and Additional Rent shall be adjusted as of the date of termination and |
this Lease shall thereupon terminate.
(c) | Any portion of the Building that cannot be repaired within one hundred twenty (120) days, Tenant has the right to cancel that portion of lease space. |
20. | ASSIGNMENT OR SUBLETTING |
Tenant acknowledges that Landlord has entered into this Lease because of Tenant's financial strength, goodwill, ability and expertise and that accordingly, this lease is personal to Tenant. Taking this into consideration, tenant shall not assign, mortgage, sublet, pledge or encumber this Lease, in whole or in part, except with the written consent of the Landlord, which shall not be unreasonably withheld or delayed. Tenant agrees that, in the event of any such assignment or subletting, Tenant shall nevertheless remain liable for the performance of all terms, covenants, and conditions of this Lease.
In the event the Landlord consents to an assignment of the Lease, any money or consideration to be paid to Tenant for the assignment shall be paid to the Landlord as partial consideration for the Landlord's consent to the assignment.
In the event the Landlord consents to a sublease of the Premises, or any portion thereof, Tenant shall pay to the Landlord a sum equal to (1) any money, rent or other consideration paid to the Tenant by any subtenant in excess of the pro-rata portion of the rent for such space then being paid by Tenant to Landlord under this Lease and (2) any other profit or gain realized by the Tenant from such subletting. All sums payable hereunder by Tenant shall be paid to Landlord as additional rent immediately upon the receipt thereof by Tenant.
21. | SUBORDINATION AND ATTORNMENT |
This Lease shall be subject to and subordinate at all times to the lien of any mortgage and/or deeds of trust and all land leases now or hereafter made on any portion of the Premises, and to all advances thereunder, provided the mortgagee or trustee named in said mortgage or deed of trust shall agree to recognize this Lease and agrees, in the event of foreclosure, not to disturb the Tenant's possession hereunder, provided Tenant is not in default under this Lease. This subordination shall be self-operative and no further instrument of subordination shall be required.
If any proceedings are commenced to foreclose any mortgage or deed of trust encumbering the Premises, Tenant agrees to attorn to the purchaser at the foreclosure sale, if requested to do so by any such purchaser, and to recognize such purchaser as the Landlord under this Lease, provided purchaser shall agree that Tenant's rights hereunder shall not be disturbed so long as Tenant has not committed any event of default as to which the applicable cure period has not expired.
22. | CONDEMNATION |
(a) | If the whole of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain, condemnation or conveyance in lieu thereof, then this Lease shall terminate as of the date on which possession of the Premises is required to be surrendered to the condemning authority and the Tenant shall have no claim against Landlord or the condemning authority for the value of the unexpired term of this Lease. Tenant shall have the right to claim, however, the unamortized cost of any improvements or additions made to the Premises by Tenant at its cost, the value of any Tenant fixtures and furnishings and any moving expenses. |
(b) | If a portion of the Premises shall be so taken or conveyed, and if such partial taking or conveyance shall render the Premises unsuitable for the business of the Tenant, then the term of this Lease shall cease and terminate as of the date on which possession of the portion of the Premises is surrendered to the condemning authority, and Tenant shall have no claim against Landlord or the condemning authority for the value of any unexpired term of this Lease. |
In the event such partial taking or conveyance is not extensive enough to render the Premises untenantable for the business of Tenant, this Lease shall continue in full force and effect, except that the Minimum Rent shall be reduced in the same proportion that the floor area of the Premises so taken or conveyed bears to such floor area immediately prior to such taking or conveyance.
In the event of such partial taking and continuation of Lease, Landlord shall promptly restore the Premises as nearly as practical to the condition comparable to that which existed prior to the condemnation.
23. | EVENTS OF DEFAULT |
The occurrence of any of the following shall constitute an event of default hereunder:
(a) | Failure of Tenant to pay installment of rent within five (5) days of the due date, or failure of Tenant to pay within fifteen (15) days any other sum herein required to be paid by Tenant. |
(b) | Tenant's failure to perform any other covenant or condition of this Lease within thirty (30) days, unless the failure is of such a character as to require more than thirty (30) days to cure in which event Tenant's failure to proceed diligently to cure such failure shall constitute an event of default. |
24. | LANDLORD'S REMEDIES |
Upon the occurrence of any event of default, Landlord may, at Landlord's sole option, exercise any or all of the following remedies, together with any such other remedies as may be available to Landlord at law or in equity.
(a) | Landlord may terminate this Lease by giving Tenant written notice of its election to do so, as of a specified date not less than thirty (30) days after the date of the giving of such notice and this Lease shall then expire on the date so specified, and Landlord shall then be entitled to immediately regain possession of the Premises as if the date had been originally fixed as the expiration date of the term of this Lease. Landlord may then re-enter upon the Premises, either with or without due process of law, and remove all persons therefrom, the statutory notice to quit or any other notice to quit being hereby expressly waived by Tenant. Tenant expressly agrees that the exercise by Landlord of the right of re-entry shall not be a bar to or prejudice in any way other legal remedies available to Landlord. In that event, Landlord shall be entitled to recover from Tenant as and for liquidated damages an amount equal to the rent and additional rent reserved in this Lease less any and all amounts received by Landlord from the rental of the Premises to another tenant. Nothing herein contained, however, shall limit or prejudice the right of Landlord to prove for and obtain as liquidated damages, by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which such damages are to be proved, whether or not such amount may be greater, equal to, or less than the amount of the difference referred to above, and the Landlord may, in his own name, but as agent for Tenant, re-let the Premises. Any recovery by the Landlord shall be limited to the rent hereunder (plus any costs incurred in re-letting) less any rent actually paid by the new tenant. |
(b) | No termination of this Lease or any taking of possession of the Premises shall deprive Landlord of any of its remedies or actions against Tenant for past or future rent, nor shall the bringing of any action for rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of rent, be construed as a waiver of the right to obtain possession of the Premises. |
(c) | In addition to any damages becoming due under this paragraph, Landlord shall be entitled to recover from Tenant and Tenant shall pay to Landlord an amount equal to all expenses, including attorneys' fees, if any, incurred by the Landlord in recovering possession of the Premises, and all reasonable costs and charges for the care of said Premises while vacant, which damages shall be due and payable by Tenant to Landlord at such time or times as such expenses are incurred by the Landlord. |
(d) | In the event of a default or threatened default by Tenant of any of the terms or conditions of this Lease, Landlord shall have the right of injunction and the right to invoke any remedy allowed by law or in equity |
as if no specific remedies of Landlord were set forth in this Lease.
(e) | If default be made and a compromise and settlement shall be had thereupon, it shall not constitute a waiver of any covenant herein contained, nor of the Lease itself. |
25. | RIGHTS OF LANDLORD |
Landlord reserves the following rights with respect to the Premises:
(a) | During normal business hours, upon 24 hours' notice, to go upon and inspect the Premises, and at Landlord's option, to make repairs, alterations and additions to the Premises or the Building of which the Premises are a part, provided there is no interference with Tenant's occupancy. An Agent of the Tenant may be present for inspection, if requested by Tenant. |
(b) | To display, within sixty (60) days prior to the expiration of this Lease or after notice from either party of intention to terminate this Lease, a "For Rent" sign, and all of said signs which shall be placed upon such part of the Premises as Landlord shall determine, except on doors leading into the Premises. Prospective purchasers or tenants authorized by Landlord may inspect the Premises during normal business hours following adequate notice to Tenant. |
(c) | To install, place upon, or fix to the roof and exterior walls of the Premises, equipment, signs, displays, antennae, and any other object or structure of any kind, providing the same shall not materially impair the structural integrity of the Building or interfere with Tenant's occupancy. |
26. | HOLDING OVER |
If Tenant holds possession of the Leased Premises after the Expiration Date or other termination of this Lease, Landlord shall, at its sole option, have the right to treat Tenant as a tenant by the month commencing with the first day after the termination of the Lease at one hundred twenty five percent (125%) the Basic Monthly Rent paid during the last month of the Term, and upon all the other terms of this Lease, including the provisions of this paragraph. Said holdover term shall terminate upon thirty (30) days' notice from one party to the other. Notwithstanding the foregoing, nothing contained herein shall be construed as a requirement that Landlord consent to the occupancy or possession of the Leased Premises by Tenant after the termination of the Lease, and Landlord, upon said termination of this Lease, if Landlord elects to treat Tenant as a trespasser, shall be entitled to the benefit of all public general or public laws relating to the speedy recovery of the possession of land and tenements held over by Tenant, whether now or hereafter in force and effect. If Tenant fails to surrender the Leased Premises upon the expiration or other termination of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all injury, loss, claims, expenses and liability, including without limitation, any claim made by any succeeding tenant and reasonable attorneys' fees, founded on or resulting from such failure by Tenant to surrender possession of the Leased Premises on the date required hereby.
27 | WAIVER OF CLAIMS |
Except as may result from their negligence, Landlord and Landlord's agents, employees, and contractors shall not be liable for, and Tenant hereby releases all claims for, damages to persons or property sustained by Tenant (or any person claiming through Tenant) resulting from any fire, accident, occurrence or condition in or upon the Premises or Building, including but not limited to such claims for damage resulting from (1) any defect in or failure of plumbing, heating or air-conditioning equipment, electric wiring or installation thereof, water pipes, stairs, railings or walks; (2) any equipment or apparatus becoming out of repair; the bursting, leaking or running of any tank, washstand, water closet, waste pipe, drain or any other pipe or tank, upon or about such building or premises; the backing up of any sewer pipe or downspout; (5) the escape of steam or hot water; (6) water, snow or ice being upon or coming through the roof of any other place upon or near the Building or Premises or otherwise; (7) the falling of any fixtures, plaster or stucco; (8) broken glass; and (9) any act or omission of occupants of adjoining or contiguous property of buildings.
28. | NOTICE |
All notices required under this Lease shall be given in writing and shall be deemed to be properly serviced if sent by certified or registered United States Mail, postage prepaid, as follows:
or to such other address as either may have designated from time to time by written notice to the other. The date of service of such notices shall be the date such notices are deposited in any United States Post Office.
29. | COVENANTS OF TENANT |
Tenant covenants and agrees:
(a) | To give to Landlord prompt written notice of any accident, fire, or damage occurring on or to the Premises. |
(b) | To keep the thermostats in the Premises set at a temperature sufficient to prevent freezing of water pipes, fixtures and HVAC units. |
(c) | To keep the Premises clean, orderly, sanitary, and free from insects, vermin and other pests. |
(d) | To comply with the requirements of the State, Federal and County statutes, ordinances, and regulations applicable to Tenant and its use of the Premises, and to save Landlord harmless from penalties, fines, costs, and expenses resulting from failure to do so, provided Tenant shall not be obligated to make structural repairs or alterations to so comply. |
(e) | Tenant shall promptly pay all contractors, suppliers of material and persons it engages to perform work and provide materials for construction work on the Premises so as to minimize the possibility of a lien attaching to the Premises. Should any such lien be made or filed, Tenant shall cause the same to be discharged and released of record by bond or otherwise within ten (10) days of receipt of written request from Landlord. |
30. | LANDLORD'S RIGHT TO ALTER SITE PLAN |
LANDLORD shall, from time to time, have the right to alter or modify the site plan of the Building and to rearrange the driveways and parking areas, as well as
the entrance and exits to the Premises.
31. | PARKING SPACES |
LANDLORD agrees to furnish 3 1/3 unreserved parking spaces per thousand square feet of space occupied by the TENANT. All space are available to TENANT if single tenant building.
32. | ENTIRE AGREEMENT |
This Lease contains the entire agreement of the parties. There are no oral agreements existing between them.
33. | SUCCESSORS AND ASSIGNS |
This Lease, and the covenants and conditions herein contained shall inure to the benefit of and be binding upon the Landlord, its successors and assigns, and shall inure to the benefit of and be binding upon the Tenant, its successors and assigns, if permitted.
34. | BANKRUPTCY |
If Tenant shall make an assignment of its assets for the benefit of creditors, or if Tenant shall file a voluntary petition in bankruptcy, or if any involuntary petition in bankruptcy or for receivership be instituted against the Tenant and the same be not dismissed within thirty (30) days of the filing thereof, or if Tenant shall be adjudged bankrupt, then and in any of said events, this Lease shall immediately cease and terminate at the option of the Landlord with the same force and effect as though the date of said event was the date herein fixed for expiration of the term of this Lease.
35. | NON-DELIVERY |
In the event the Landlord shall be unable to give possession of the Premises because construction of the Building is not complete or for any other cause reasonably beyond the control of the Landlord, the Landlord shall not be liable to Tenant for any damage resulting from failure to give possession.
36. | PARTIAL INVALIDITY |
If any term, covenant, or condition of this Lease or the application thereof to any person or circumstance shall be held to be invalid and unenforceable, the remainder of this Lease, and the application of such terms, covenants, or conditions shall be valid and enforceable to the fullest extent permitted by law.
37. | FORCE MAJEURE |
With the exception of those provisions contained herein regarding the payment of rent, the inability of either party to perform any of the terms, covenants or conditions of this Lease shall not be deemed a default if the same shall be due to any cause beyond the control of that party.
38. | ESTOPPEL CERTIFICATE |
The Tenant shall from time to time, within five (5) days after being requested to do so by the Landlord or any Mortgagee, execute, acknowledge and deliver to the Landlord (or, at the Landlord's request, to any existing or prospective purchaser, transferee, assignee or Mortgagee of any or all of the Premises) an instrument in recordable form, certifying (a) that this Lease is unmodified and in full force and effect (or, if there has been any modification thereof, that it is in full force and effect as so modified, stating therein the nature of such modification); (b) as to the dates to which the Minimum Rent and other charges arising hereunder have been paid; (c) as to the amount of any prepaid Rent or any credit due to the Tenant hereunder; (d) that the Tenant has accepted possession of the Premises, and the date on which the Term commenced; (e) as to whether, to the best knowledge, information and belief of the signer of such certificate, the Landlord or the Tenant is then in default in performing any of its obligations hereunder (and, if so, specifying the nature of each such default); and (f) as to any other fact or condition reasonably requested by the Landlord or such other addressee. In the event the Tenant fails or refuses to provide such a certificate, Tenant shall be liable to Landlord for any loss or damage (including reasonable counsel fees) arising out of or in connection with such failure or refusal.
IN WITNESS WHEREOF, the parties have caused this Lease Agreement to be executed on the year and date first written.
WITNESS: | LANDLORD: | |||
RICKMAN FIRSTFIELD ASSOCIATES | ||||
WITNESS: | TENANT: | |||
AVANZA LABORATORIES, LLC | ||||
/s/ William M. Rickman | ||||
By: William M. Rickman | ||||
WITNESS: | TENANT: | |||
AVANZA LABORATORIES, LLC | ||||
/s/ Carlos E. Orantes | ||||
By: | Carlos E. Orantes |
Exhibit 10.3
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS LEASE ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made as of May 1, 2019 (the "Effective Date"), by and between, AVANZA DEVELOPMENT SERVICES, LLC , a Delaware limited liability company ("Assignor"), and Oriole Toxicology Services LLC , an Indiana limited liability company (“Assignee”).
WHEREAS, Assignor is presently the holder of the tenant’s interest under that certain Lease Agreement dated December 30, 2009 by and between Rickman Firstfield Associates ("Landlord"), as landlord, and Avanza Laboratories, LLC (as predecessor in interest to Assignor), as tenant, as amended by that certain First Amendment to Lease by and between Landlord and Assignor dated December 30, 2012, as further amended by that certain Second Amendment to Lease by and between Landlord and Assignor dated June 11, 2015 (collectively, the "Lease").
WHEREAS, Assignor desires to assign the Lease to Assignee, and Assignee desires to accept an assignment of the Lease from Assignor.
WHEREAS, Assignor and Assignee desire to have Landlord consent to such assignment as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee agree as follows:
1. Assignment . As of the Effective Date, Assignor hereby assigns, conveys, transfers and sets over unto Assignee all of Assignor’s right, title and interest in, to and under the Lease. Assignor shall defend, indemnify and hold harmless Assignee from and against any liability, damages, causes of action, expenses, and attorneys' fees incurred by Assignee by reason of the failure of Assignor to fulfill, perform, discharge, and observe its obligations under the Lease accruing prior to the Effective Date.
2. Assumption . Assignee hereby assumes and agrees to pay all sums, and perform, fulfill and comply with all covenants and obligations, which are to be paid, performed, fulfilled and complied with by the tenant under the Lease, from and after the Effective Date. Assignee shall defend, indemnify and hold harmless Assignor from and against any liability, damages, causes of action, expenses, and attorneys' fees incurred by Assignor by reason of the failure of Assignee to fulfill, perform, discharge, and observe its obligations under the Lease first arising on and after the Effective Date.
3. Release of Assignor and Guaranty . Effective on the Effective Date, Landlord hereby releases Assignor and Guarantor (as defined in the Lease) from any and all obligations accruing under the Lease at any time on or after the Effective Date. For the avoidance of doubt, nothing in this Section 3 shall limit or modify Assignor's indemnification obligations set forth in Section 1 of this Assignment.
4. Estoppel . Assignor and Assignee represent and warrant that, to each of Assignor's and Assignee's respective knowledge: (i) they have no claim or offsets of any kind against Landlord as of the date of this Assignment, and (ii) they hereby acknowledge Landlord has fully complied with its obligations under this Lease.
Avanza Development Services, LLC. | Lease Assignment and Assumption |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 1 of 3 |
5. Binding Effect . This Assignment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
Signature Page Follows
Avanza Development Services, LLC. | Lease Assignment and Assumption |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 2 of 3 |
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as of the date set forth above.
WITNESS: | ASSIGNOR : | ||
AVANZA DEVELOPMENT SERVICES, LLC | |||
/s/ David H. | By: | /s/ Michael P. Hollabaugh | |
Name: | Name: | Michael P. Hollabaugh | |
Title: | Treasurer |
WITNESS: | ASSIGNEE : | ||
Oriole Toxicology Services LLC , | |||
an Indiana limited liability company | |||
/s/ Julie A. Spencer | By: | /s/ Robert Leasure, Jr. | |
Name: | Name: | Robert Leasure, Jr. | |
Title: | President |
CONSENT OF LANDLORD
Subject to each of the terms and conditions of this Assignment and the Lease, Landlord hereby consents to the assignment of the Lease from Assignor to Assignee, including any lease renewal rights. Nothing herein shall be construed as a waiver by Landlord of the restrictions in the Lease concerning further assignment, and Assignee expressly agrees not to assign, transfer, convey or hypothecate any interest of Assignee under the Lease without Landlord’s advance written consent, which consent shall not be unreasonably withheld or delayed. Landlord further agrees to the release in Section 3 of this Assignment.
WITNESS: | LANDLORD : | ||
RICKMAN FIRSTFIELD ASSOCIATES | |||
/s/ Brandon Rickman | By: | /s/ William M. Rickman | |
Name: | Name: | William M. Rickman | |
Title: | Managing General Partner |
Avanza Development Services, LLC. | Lease Assignment and Assumption |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 3 of 3 |
Exhibit 10.4
Third Amendment to Lease
THIS THIRD AMENDMENT TO LEASE ("Third Amendment") is made as of May 1, 2019 (the "Effective Date"), by and between, Rickman Firstfield Associates , a Maryland general partnership ("Landlord"), and Oriole Toxicology Services LLC , an Indiana limited liability company ("Tenant").
RECITALS
A. Landlord, as landlord, and Avanza Development Services, LLC, a Delaware limited liability company ("Prior Tenant"), as tenant, are parties to that certain Lease Agreement dated as of December 30, 2009 ("Original Lease"), as amended by that certain First Amendment to Lease by and between Landlord and Prior Tenant dated December 30, 2012 ("First Amendment"), as further amended by that certain Second Amendment to Lease by and between Landlord and Prior Tenant dated June 11, 2015 ("Second Amendment").
B. Prior Tenant assigned its interest as tenant under the Lease to Tenant pursuant to that certain Assignment and Assumption of Lease by and between Prior Tenant and Tenant dated on or about the date hereof ("Lease Assignment" and collectively with the Original Lease, the First Amendment, and the Second Amendment, the "Lease").
C. Landlord and Tenant desire to amend the Lease on the terms set forth in this Third Amendment.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant, intending to be legally bound, do hereby amend the Lease as follows:
1. Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Lease. Unless the context clearly indicates otherwise, all references to the "Lease" in the Lease and in this Third Amendment shall hereinafter be deemed to refer to the Lease, as amended hereby.
2. Minimum Rent . Notwithstanding anything to the contrary contained in the Lease, Tenant shall, commencing on May 1, 2019, be obligated to pay in the manner specified in the Lease, minimum rent for the Premises in the following amounts:
Lease Year | Monthly | (Annual) Rent | ||||||
May 1, 2019 – April 30, 2020 | $ | 51,718.88 | $ | (620,626.56 | ) | |||
May 1, 2020 - April 30, 2021 | $ | 53,270.45 | $ | (639,245.35 | ) | |||
May 1, 2021 - April 30, 2022 | $ | 54,868.56 | $ | (658,422.71 | ) | |||
May 1, 2022 - April 30, 2023 | $ | 56,514.66 | $ | (678,175.39 | ) | |||
May 1, 2023 - April 30, 2024 | $ | 58,210.05 | $ | (698,520.65 | ) | |||
May 1, 2024 – December 31, 2024 | $ | 59,956.36 | $ | (719,476.26 | ) |
*not full year
Oriole Toxicology Services LLC | Third Amendment to Lease |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 1 of 6 |
3. Minimum Payment . Notwithstanding the Minimum Rent in Section 2 of this Third Amendment, in an effort to maintain the viability of Tenant's business as it operates in the Premises, Landlord is willing to accept lower Minimum Rent payments and to defer the remaining owed amount to a later time when Tenant sales increase. Accordingly, notwithstanding anything to the contrary contained in the Lease, Tenant may, commencing on May 1, 2019, pay in the manner specified in the Lease, minimum payment for the Premises in the following amounts or five percent (5%) of sales, whichever is greater:
Period | Annual Minimum Payment |
Monthly
Installment of
|
||
May 1, 2019 – April 30, 2020 | $400,000.00 | $33,333.34 | ||
May 1, 2020 – April 30, 2021 | $500,000.00 | $41,666.67 | ||
May 1, 2021 – April 30, 2022 | $600,000.00 | $50,000.00 | ||
May 1, 2022 – April 30, 2023 | $700,000.00 | $58,333.33 | ||
May 1, 2023 – April 30, 2024 | $800,000.00 | $66,666.67 | ||
May 1, 2024 – December 30, 2024 | Remaining Balance Owed |
4. Option to Purchase . Section 5 of the First Lease Amendment is hereby deleted in its entirety. In lieu of the Purchase Option set forth in Section 5 of the First Lease Amendment, Tenant shall have the option to purchase the Premises as set forth in this Section 3.
Landlord hereby grants to Tenant the sole and exclusive right and option (the "Purchase Option") to purchase the Premises on the terms set forth in this Section 3 and in Exhibit B attached to the First Lease Amendment. Tenant shall have the right to exercise its Purchase Option at any time by delivering written notice to Landlord of such exercise (the "Option Notice"). If Tenant exercises the Purchase Option, then Tenant shall pay at Closing (as defined in Exhibit B to the First Lease Amendment) an amount equal to the Purchase Price (as defined below).
The "Purchase Price" shall mean the amount set forth in the table below, which amount shall be determined based on the date that the Option Notice is given:
Date of Option Notice | Purchase Price | |
On or before April 30, 2020 | $5,800,000.00 | |
May 1, 2020 to April 30, 2021 | $5,800,000.00 | |
May 1, 2021 to April 30, 2022 | $5,800,000.00 | |
May 1, 2022 to April 30, 2023 | $5,800,000.00 | |
May 1, 2023 to April 30, 2024 | $5,800,000.00 | |
May 1, 2024 or later | $5,800,000.00 with three percent (3%) increases for each May 1 – April 30 period after April 30, 2025 |
If Tenant exercises the Purchase Option and the Closing is not scheduled to occur within the term of the Lease, Tenant shall continue to be bound by the terms and conditions of the Lease until the Closing Date (as defined in Exhibit B of the First Lease Amendment). Landlord is precluded from marketing for sale and/or selling the Premises during the period commencing on the Effective Date of this Third Amendment and expiring on the third anniversary of the day immediately preceding the Effective Date of this Third Amendment.
Oriole Toxicology Services LLC | Third Amendment to Lease |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 2 of 6 |
5. Guaranty . Concurrently with the execution of this Third Amendment by Tenant, and as a condition to Landlord's obligations and as a material inducement to Landlord executing this Third Amendment, Bioanalytical Systems, Inc., an Indiana corporation (the "Guarantor"), shall execute and deliver to Landlord a guaranty in the form attached hereto as Exhibit A (the "BASI Guaranty"), guaranteeing the performance of Tenant's obligations under the Lease as set forth in the BASI Guaranty.
6. Full Force and Effect . Except as expressly supplemented, amended or modified by this Third Amendment, the Lease shall continue in full force and effect. Landlord and Tenant do hereby ratify and affirm the terms, covenants, conditions, and obligations of the Lease, except as otherwise set forth herein. In the event of any conflict between any provision of the Lease and any provision of this Third Amendment, the provision of this Third Amendment shall prevail.
7. Binding Effect . This Third Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
8. Counterparts . This Third Amendment may be executed in multiple counterparts, each of which may be deemed an original and all of which, when taken together, shall constitute one instrument.
[Signatures Follow]
Oriole Toxicology Services LLC | Third Amendment to Lease |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 3 of 6 |
IN WITNESS WHEREOF, Landlord and Tenant have executed this Third Amendment as of the date set forth above.
WITNESS: | Landlord : | ||
Rickman Firstfield Associates | |||
a Maryland general partnership | |||
/s/ Brandon Rickman | By: | /s/ William M. Rickman | |
Name: Brandon Rickman | Name: | William M. Rickman | |
Title: | Managing General Partner |
WITNESS: | Tenant : | ||
Oriole Toxicology Services LLC , | |||
an Indiana limited liability company | |||
/s/ Julie A. Spencer | By: | /s/ Robert Leasure, Jr. | |
Name: | Name: | Robert Leasure, Jr. | |
Title: | President |
Oriole Toxicology Services LLC | Third Amendment to Lease |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 4 of 6 |
Exhibit A
Guaranty
In consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned, commencing on the Effective Date of the Third Amendment to Lease (as defined below), Bioanalytical Systems, Inc., an Indiana corporation ("Guarantor"), hereby guarantees all the obligations of Oriole Toxicology Services LLC, an Indiana limited liability company ("Tenant"), under that certain Lease Agreement dated as of December 30, 2009 ("Original Lease") by and between Rickman Firstfield Associates ("Landlord"), as landlord, and Avanza Development Services, LLC, a Delaware limited liability company ("Prior Tenant"), as amended by that certain First Amendment to Lease by and between Landlord and Prior Tenant dated December 30, 2012 ("First Amendment"), as further amended by that certain Second Amendment to Lease by and between Landlord and Prior Tenant dated June 11, 2015 ("Second Amendment"), as Prior Tenant's interest was assigned to Tenant pursuant to that certain Assignment and Assumption of Lease dated on or about the date hereof ("Lease Assignment"), as further amended by that certain Third Amendment to Lease by and between Landlord and Tenant ("Third Amendment", and collectively with the Original Lease, the First Amendment and the Second Amendment, the "Lease"), for the period of time commencing on the Effective Date of the Third Amendment and expiring on the third anniversary of the date immediately preceding the Effective Date of the Third Amendment.
Guarantor further waives presentment, demand, protest, notice of protest, and notice of dishonor, or any other default under said Lease. Guarantor agrees that no extension of time, whether one or more, nor any other indulgences, granted by Landlord to Tenant, or to the Guarantor. and no omission or delay on Landlord's part, in exercising any right against or in taking any action to collect from or pursue Landlord's remedies against Tenant or Guarantor, will release, discharge, or modify the duties of the Guarantor. Guarantor agrees that Landlord. without notice to or further consent from Guarantor, release any collateral, security now held or hereafter acquired, and no such action will release, discharge or modify the duties of the Guarantor hereunder
Guarantor further agrees that Landlord will not be required to pursue or exhaust any of its rights or remedies with respect to any collateral, security, or other guarantees, or take any action of any sort, prior to demanding payment from or pursuing its remedies against the Guarantor.
Notwithstanding anything to the contrary in this Guaranty, Guarantor's liability hereunder shall be limited to the sum of: (i) the Minimum Rent due under the Lease to Landlord at the time Tenant becomes in default thereunder, and (ii) Minimum Rent for a period of twelve (12) months immediately following the moment Tenant becomes in default under the Lease (collectively, the "Guaranty Cap"). For the avoidance of doubt, Landlord shall have no claim against Guarantor for any amounts due under the Lease in excess of the Guaranty Cap.
The rights of the holder of this agreement or instrument to receive payment are subject and subordinate to the final payment of all obligations of Oriole Toxicology Services LLC and Bioanalytical Systems, Inc. to First Internet Bank of Indiana, or its successors or assigns, pursuant to the terms of a Subordination Agreement, dated as of May 1, 2019, by and among Bioanalytical Systems, Inc., Oriole Toxicology Services LLC, Smithers Avanza Toxicology Services LLC, and First Internet Bank of Indiana.
Oriole Toxicology Services LLC | Third Amendment to Lease |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 5 of 6 |
GUARANTOR: | ||
Bioanalytical Systems, Inc. | ||
By: | /s/ Robert Leasure, Jr. | |
Robert Leasure, Jr., President and Chief Executive Officer |
Oriole Toxicology Services LLC | Third Amendment to Lease |
15 Firstfield Road | |
Gaithersburg, Maryland | Page 6 of 6 |
Exhibit 31.1
CERTIFICATIONS
I, Robert W. Leasure, Jr., President and Chief Executive Officer, certify that:
1. | I have reviewed this report on Form 10-Q of Bioanalytical Systems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Robert W. Leasure, Jr. | |
Date: August 14, 2019 | Robert W. Leasure, Jr. |
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Jill C. Blumhoff, Vice President of Finance and Chief Financial Officer, certify that:
1. | I have reviewed this report on Form 10-Q of Bioanalytical Systems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Jill C. Blumhoff | |
Jill C. Blumhoff | |
Date: August 14, 2019 | Vice President of Finance and Chief Financial Officer |
Exhibit 32.1
Certifications of Acting Principal Executive Officer
Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
The undersigned, the President and Chief Executive Officer of Bioanalytical Systems Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
(a) | the Form 10-Q Quarterly Report of the Company for the three and nine months ended June 30, 2019 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(b) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Robert W. Leasure, Jr. | |
Robert W. Leasure, Jr. | ||
President and Chief Executive Officer | ||
Date: August 14, 2019 |
Exhibit 32.2
Certifications of Chief Financial Officer
Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
The undersigned, the Vice President of Finance and Chief Financial Officer of Bioanalytical Systems Inc. (the “Company”), hereby certifies that, to the best of her knowledge:
(a) | the Form 10-Q Quarterly Report of the Company for the three and nine months ended June 30, 2019 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(b) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Jill C. Blumhoff | |
Jill C. Blumhoff | ||
Vice President of Finance and Chief Financial Officer | ||
Date: August 14, 2019 |